""  '     hnoh  is  DUE  on  the  last  date  stamped  below 


^'^^(VERSiTY  OF  CALIFOR>^i 


61ST  CONGRESS  :  :  2d  SESSION 

1909-1910 


SENATE  DOCUMENTS 


Vol,  9 


WASHINGTON  :  :  GOVERNMENT  PRINTING  OFFICE  :  :  1910 


4  iSdo 


61ST  Congress!  SENATE  fDocuMENx 

2d  Session     J  \    No.  399 


NATIONAL  MONETARY  COMMISSION 


THE  USE  OF 

CREDIT  INSTRUMENTS 

IN  PAYMENTS  IN  THE 
UNITED  STATES 


REPORT  COMPILED   BY 

DAVID  KINLEY,  Ph.D.,LL.  D. 

University  of  Illinois 


<1\ 


Washington  :  Government  Printing  Office  :  1910 


NATIONAL  MONETARY  SYSTEM. 


NEUSON  W.  Aldrich,  Rhode  Island,  Chairman. 
Edward  B.  Vrkei-and,  New  York,  Vice-Chair7nan. 


Julius  C.  Borrows,  Michigan. 
EuGiiNK  Hale,  Maine. 
Philander  C.  Knox,  Pennsylvania. 
Theodore  E.  Burton,  Ohio. 
John  W.  Daniel,  Virginia. 
Henry  M.  Teller,  Colorado. 
Hernando  D.  Money,  Mississippi. 
Joseph  W.  Bailey,  Texas. 


Jesse  Overstreet.  Indiana. 
John  W.  Weeks,  Massachusetts. 
Robert  W.  Bonynoe,  Colorado. 
Sylvester  C.  Smith,  California. 
Lemuel  P.  Padgett,  Tennessee. 
George  F.  Burgess.  Texas. 
Arsene  P.  Pujo,  Louisiana. 
Arthur  B.  Shelton,  Secretary. 


A.  Piatt  Andrew,  Special  Assistant  to  Commission . 


K  i^Z.  j-L, 


CONTENTS. 


Page. 

Purposes  of  the  inquiry i 

Methods  of  inquiry 5 

The  clearing-house  method 6 

The  bank-deposit  method 8 

Method  of  getting  information  direct  from  merchants 11 

History  of  inquiries  previously  made - 11 

English  investigations — 

The  Slater  inquiry 12 

The  Babbage  inquirj' . 13 

The  Palgrave  inquiry 1 13 

The  Lubbock  inquiry 15 

The  Martin  inquiry \b. 

The  Pownall  inquiry 17 

Criticism  of  English  inquiries :__  18 

American  investigations — 

The  Garfield  inquiry 20 

The  inquiry  of  1881 20 

The  inquiry  of  1 890 23 

The  inquiry  of  1892 ^ ___. 24 

The  inquiry  of  1894 , 26 

The  inquiry  of  1 896 28 

Criticism  of  these  American  inquiries ,  .    .                   30 

The  present  inquiry : 

The  letter  of  inquiry ^ 31 

Form  of  blank  for  reply,  with  explanations 33 

General  discussion  of  the  statistics 38 

The  day  selected 40 

General  criticism  of  the  replies 42 

Table  showing  number  of  replies  received  and  rejected 47 

Classes  of  banks  reporting 50 

Classes  of  business  and  customs  as  to  methods  of  payment 53 

The  retail  returns- 
Table  of  retail  deposits  in  banks  by  classes  of  banks  and 

States 58 

Table  of  aggregate  retail  deposits  by  states 66 

Table  of  aggregate  retail  deposits  by  banks 68 


National     Monetary     Commission 


The  present  inquiry — Continued. 
The  retail  returns — Continued. 

Discussion  of  tables —  Page. 

Retail  deposits  of  national  banks 69 

Retail  deposits  of  state  banks 69 

Retail  deposits  of  private  banks 70 

Retail  deposits  of  loan  and  trust  companies 71 

Retail  deposits  of  stock  savings  banks 72 

Retail  deposits  of  mutual  savings  banks 73 

Aggregate  retail  deposits 73 

Allowances  and  corrections — 

Banks  not  heard  from 75 

Allowances  for  possible  excess  of  checks 78 

Ignorance  of  business  of  depositors 81 

Retail  returns  by  geographical  divisions 82 

Tables  of  retail  deposits  by  geographical  divisions 83 

Checks  in  cities  and  agricultural  districts 86 

Reserve  cities 86 

Tables  of  retail  deposits  in  banks  in  representative 

reserve  cities 88 

Country  without  these  reserve  cities 92 

Table  of  retail  deposits  in  certain  states  in  cities  of 

less  than  25,000  inhabitants 94 

Returns  from  industrial  centers 93 

Evidence  of  pay  rolls 96 

Tables  of  reported  average  pay  rolls  in  cash  and 

checks,  with  discussion  of  same 96 

Returns  from  merchants — 

In  previous  inquiries 105 

In  present  inquiry 109 

What  the  deposits  show 115 

Estimates  from  expenditure  and  population 117 

The  wholesale  returns 122 

Corrections  for  nonreplying  banks 123 

Table  of  wholesale  deposits  by  classes  of  banks  and  States.  124 

Table  of  aggregate  wholesale  deposits  by  States 131 

Table  of  aggregate  wholesale  deposits  by  banks 133 

Discussion  of  tables — 

Wholesale  deposits  of  the  national  banks 134 

Wholesale  deposits  of  the  State  banks 134 

Wholesale  depo.sits  of  the  private  banks 135 

Wholesale  deposits  of  loan  and  trust  companies 136 

Wholesale  deposits  of  savings  banks. 136 

Aggregate  wholesale  deposits .  136 


The     Use    of    Credit    Instruments 

Tlic  present  inquiry — Continued.  Page. 
Returns  of  wholesale  deposits  in  certain  reserve  cities  and  by 

geographical  divisions i37 

Reserve  cities:  Wholesale  deposits  of  national  banks 137 

Wholesale  deposits  of  state  and  other  banks 138 

Reserve  cities:  Aggregate  wholesale  deposits 138 

Tables  of  wholesale  deposits  of  banks  at  representative 

reserve  cities i39 

Wholesale  deposits  by  geographical  divisions ^  144 

Conclusion  as  to  wholesale  deposits 148 

Wholesale  deposits  for  certain  States,  less  those  in  cities  of 

over  25,000  inhabitants    149 

The  "all  others"  class  of  deposits 150 

Allowances  and  corrections  in  "all  other"  class 151 

Returns  of  "all  other"  depositors  in  national  banks 154 

"All  other"  returns  of  state  and  private  banks 155 

"All  other"  returns  of  loan  and  trust  companies  and  sav- 
ings banks 156 

Conclusions  as  to  percentage  of  checks  in  "all  other"  de- 
posits   158 

Tables  of  "all  other"  deposits  in  the  various  classes  of 

banks 160 

Tables  of  "all  other"  deposits  in  representative  reserve 

cities 174 

Table  of  aggregate  "  all  other"  deposits  in  cities  of  less  than 

25,000  inhabitants 177 

Table  of  "all  other"  deposits  by  geographical  divisions..  177 

Study  of  the  aggregate  figures 180 

Table  of  aggregate  deposits,  by  States 181 

Distribution  of  aggregate  deposits,  by  banks 183 

Aggregate  deposits  of  all  classes  in  reserve  cities 185 

-•Aggregate  percentage  in  country  deposits 187 

Collateral  evidence  as  to  the  use  of  checks — 

Change  in  small  bills 189 

Evidence  from  the  number  of  bank  accounts 191 

Final  conclusions  as  to  the  average  proportion  of  payments 

made  with  checks,  etc 196 

Summary  of  results  of  inquiry 199 

The  bearing  of  these  investigations  on  the  monetary  situation 202 

The  amount  of  money  rendered  unnecessary  by  credit  paper, .  203 
Relation  of  credit  exchanges  and  the  volume  of  money  and 

prices ^11 

Our  monetary  circulation 214 

Do  we  need  more  money 217 

Additional  supply  of  circulating  medium 219 

Bibliography 221 

V 


LIST  OF  TABLES. 


Page. 

Table  I. — Number  of  replies  received  and  rejected .    _  _  47 

Table  II. — Retail  deposits  by  classes  of  banks 58 

Table  III. — Aggregate  deposits  of  retail  dealers,  all  banks,  by  States.  66 

Table  IV. — Aggregate  retail  deposits,  by  banks 68 

Table  V. — Retail  deposits  by  geographical  divisions 83 

Table  VI. — Retail  deposits  at  representative  reserve  cities,  all  classes 

of  banks 88 

Table  VII. — Retail  deposits  of  banks,  except  those  in  cities  of  more 

than  25,000  population . 94 

Table  VIII. — Wage  pay  rolls  for  week  ended  March  13,  1909 96 

Table  IX. — Wholesale  deposits,  by  classes  of  banks 124 

Table  X. — Aggregate  wholesale  deposits  by  States 131 

Table  XI. — Aggregate  wholesale  deposits  by  classes  of  banks 133 

Table  XII. — Wholesale  deposits  at  representative  reserve  cities  by 

classes  of  banks 139 

Table  XIII. — Wholesale    deposits    by    geographical    divisions,     by 

classes  of  banks 145 

Table  XIV. — Wholesale  deposits   for   certain   States,   less    those    in 

cities  of  over  25,000  population 149 

Table  XV. — All  other  deposits  by  classes  of  banks 160 

Table  XVI. — Aggregate  all  other  deposits  by  States 169 

Table  XVII. — Aggregate  all  other  deposits  by  banks 171 

Table  XVII 1. — All  other  deposits  at  representative  reserve  cities  by 

classes  of  banks _.. 172 

Table  XIX. — Aggregate  all  other  deposits  in  certain  States,  except- 
ing in  places  of  more  than  25,000  population 177 

Table  XX. — Aggregate  all  other  deposits  by  geographical  divisions.  177 

Table  XXI. — Aggregate  deposits  by  States 181 

Table  XXII. — Aggregate  deposits  by  classes  of  banks ._  184 

Table  XXIII. — Aggregate  of  all  classes  of  deposits  in  representative 

reserve  cities r86 

Table  XXIV. — .Aggregate   deposits  of  banks  of  certain  vStates,  ex- 
cepting those  in  places  of  more  than  25,000  population 188 

Table  XXV.— Proportion  of  bills  of  different  denominations igo 

Table  XXVI. — Aggregate  individual  and  other  deposits  and  num- 
ber of  accounts 193 

Diagram.s ,. 220-222 


THE  USE  OF  CREDIT  INSTRUMENTS 
IN  PAYMENTS  IN  THE  UNITED 
STATES. 

Discussions  concerning  the  issue  of  notes  by  banking 
institutions,  which  largely  occupied  the  attention  of 
students  of  finance  and  business  men  in  the  eighteenth 
and  the  first  three  quarters  of  the  nineteenth  centuries, 
have  been  succeeded  by  equally  intense  discussions  of  the 
amount  and  influence  of  credit  deposits  on  the  books  of 
the  banks,  when  drawn  on  by  their  customers  with  checks. 
The  fact  that  the  use  of  checks  against  deposits  renders 
unnecessary  a  large  amount  of  money,  or  currency, 
attracted  attention  early  in  the  history  of  deposit  banking, 
and  efforts  have  been  made  from  time  to  time  to  determine 
the  proportion  of  money,  or  currency,  replaced  with 
checks  and  credit  documents  of  similar  character." 

The  purpose  of  these  inquiries,  of  which  the  investigation 
here  reported  is  the  latest,  is  a  double  one.  It  is  desired, 
in  the  first  place,  to  find  a  basis  for  estimating  the  propor- 
tion of  business  done  by  means  of  credit  paper,  or  the 
volume  of  exchanges  settled  without  the  direct  use  of 
money  or  currency — in  other  words,  the  volume  of  money 
which  credit  instruments  enable  the  country  to  dispense 

oin  this  discussion  the  phrase  "credit  documents"  or  " credit  instru- 
ments" does  not  include  bank  notes. 


National    Monetary     Commission 

with,  and,  therefore,  indirectly,  the  volume  of  money 
which  the  country  needs.  The  second  purpose  of  these 
inquiries  is  to  shed  light  on  the  effect  of  credit  exchanges 
on  the  value  of  money,  or  the  price  level. 

In  all  industrial  communities  exchanges  are  made  in 
three  ways:  by  direct  barter;  by  direct  money  payment; 
and  by  indirect  barter,  or  exchanges  wherein,  instead  of 
money,  credit  documents  of  some  kind  are  given,  which 
cancel  one  another  partly  or  wholly,  and  so  render  the  use 
of  money  necessary  only  for  the  settlement  of  balances,  if 
at  all. 

Not  uncommonly  it  is  thought  that  exchange  by  direct 
barter  is  unimportant  in  highly  advanced  communities. 
The  volume  of  products  which  is  put  into  market,  in  any 
country,  is  far  from  being  the  total  volume  of  its  produc- 
tion. A  large  amount  of  goods  are  consumed  directly  by 
those  who  produce  them.  These  goods  do  not  enter  at  all 
into  the  market,  and  therefore  have  no  direct  effect  on 
prices  or  on  the  amount  of  money  needed  by  the  country. 
To  be  sure,  they  exercise  a  potential  influence,  because  in 
case  of  a  scarcity  of  supply  in  any  line  much  that  is  ordi- 
narily consumed  by  the  producers  would  be  thrown  upon 
the  market  for  sale.  In  a  way,  therefore,  goods  consumed 
by  their  immediate  producers  constitute  a  barrier  against 
a  sudden  great  advance  of  prices.  This  phenomenon  is 
familiar  enough  to  the  public  in  the  case,  for  example,  of 
wheat.  The  price  on  the  exchanges  and  in  the  market  is 
largely  influenced  by  visible  and  invisible  amounts  not 
yet  offered  for  sale.  Nevertheless,  the  volume  of  goods 
used  directly  by  those  who  produce  them,  exercises,  as 


The     Use    of    Credit    Instruments 

already  remarked,  no  important  direct  influence  on  prices. 
This  is  so  whether  the  articles  are  finished  goods  ready  for 
the  so-called  "ultimate  consumer"  or  become  the  raw 
material  of  another  intermediate  producer,  provided,  of 
course,  the  article  is  not  monopolized  by  a  single  producer. 

A  second  portion  of  the  goods  produced  are  sold  for 
money.  Many  portions  of  these  goods  are  doubtless  sold 
many  times  before  they  reach  the  consumer.  The  sale  of 
this  volume  of  goods  constitutes  a  direct  demand  for 
money  to  effect  payment,  the  amount  necessary  for  the 
purpose  depending  not  only  upon  the  average  price,  but 
upon  the  number  of  times  the  goods  change  hands  before 
reaching  the  consumer. 

Still  a  third  volume  of  goods  produced  and  entered  into 
market  are  sold  on  the  basis  of  a  price  established  by  the 
money  exchanges,  but  are  not  paid  for  with  money  in  any 
form.  For  a  large  majority  of  these  purchases  checks  are 
given  either  at  the  time  of  purchase  or  soon  after.  These 
checks  are  deposited  with  the  banks;  by  means  of  book- 
keeping they  are  set  off  against  one  another,  and  the 
balances  only  call  for  money  payment.  Even  these  bal- 
ances, however,  may  not  call  for  the  use  of  money  for 
their  settlement;  they  may,  and  indeed  frequently  are, 
entered  to  the  credit  of  the  o"WTier  on  the  books  of  his 
bank,  and  in  time  canceled  by  the  payments  against  him 
coming  in  at  a  later  period.  Obviously  this  volume  of 
goods,  since  it  does  not  call  for  the  direct  use  of  money, 
enables  a  community  to  do  away  with  a  large  volume  of 
money  which  would  otherwise  be  necessary.  It  is  not 
true,  however,  as  some  apparently  have  thought,  that  no 


National    Monetary     Commission 

money  is  necessary  for  these  transactions.  In  normal 
times,  when  business  is  good  and  confidence  unimpaired, 
there  are  always  some  balances  from  these  transactions 
the  owners  of  which  call  for  settlement  in  money,  and  the 
banks  must  keep  a  reserve  against  these  demands.  When 
confidence  is  impaired,  these  balances  are  likely  to  be 
larger,  even  if  the  total  volume  of  credit  is  smaller. 

There  is  no  way  of  determining  the  relative  amounts  of 
business  done  in  the  three  ways  mentioned — by  direct 
barter,  direct  money  payment,  and  credit  paper.  No 
data  exist  which  would  enable  us  to  make  even  an  ap- 
proximate estimate  of  the  first  portion  or  indeed  of  the 
second.  It  is  possible,  however,  to  determine  with  some 
degree  of  accuracy  the  volume  of  business  done  by  indirect 
barter  or  settled  with  credit  paper,  for  we  can  get  some 
idea  of  the  amount  of  business  thus  done  by  a  study  of  the 
statistics  of  the  banks. 

The  amount  of  the  country's  business  settled  with 
credit  paper  has  long  been  a  matter  of  dispute,  on  which 
widely  different  opinions  have  been  expressed.  On  the 
one  hand,  men  of  affairs,  especially  in  banking  and  other 
business  circles,  impressed  as  they  naturally  are  with  the 
vast  volume  of  business  transacted  under  their  eyes  by 
means  of  credit  paper,  have  usually  overemphasized  the 
importance  of  credit  paper  settlements  and  minimized 
the  importance  of  the  large  volume  of  currency.  On  the 
other  hand,  others,  particularly  those  who  from  time  to 
time  urge  upon  the  public  the  necessity  of  a  larger  volume 
of  currency,  have  denied  that  the  volume  of  credit  business 
was  as  large  as  claimed  and  have  minimized  its  influence, 


The     Use    of    Credit    Instruments 

urging,  on  the  contrary,  the  necessity  for  a  larger  volume 
of  mone}'.  Some  of  them  have  gone  further  and  insisted 
that  even  if  the  volume  of  credit  payments  were  as  large 
as  many  claim,  it  is  a  bad  thing  to  have  business  done  so 
largely  in  this  way  and  that  it  is  desirable  for  the  best 
interests  of  the  country  that  the  volume  of  credit  business 
should  be  diminished  and  that  of  direct  money  payment 
enlarged. 

More  careful  students  of  the  subject,  in  both  of  the 
above  groups,  have  insisted,  like  Francis  A.  Walker,  upon 
a  middle  view.  They  have  admitted  freely  the  claims  of 
the  business  men,  bankers,  and  others,  that  over  90  per 
cent  of  the  "  wholesale  "  business  of  the  country  was  done 
by  means  of  checks,  drafts,  or  bills,  but  have  urged  that 
the  retail  business  was  mainly  done  with  money;  that 
wages  were  mainly  paid  with  money,  and  that  the  demand 
for  money  for  these  purposes  constituted  the  most  impor- 
tant part  of  the  country's  need  for  money. 

The  second  and  indirect  purpose  of  the  inquiry  is  to 
get  some  light  on  the  amount  of  money  needed  and  the 
effect  of  the  volume  of  credit  transactions  on  its  value. 
The  discussion  of  this  topic,  however,  will  be  more  oppor- 
tune after  we  have  reached  some  conclusion  concerning 
the  first  matter. 

METHODS    OF    INQUIRY. 

Three  methods  have  been  pursued  in  the  effort  to  de- 
termine the  proportion  of  business  done  by  credit  docu- 
ments. For  the  sake  of  brevity  these  may  be  referred  to 
as  the  method  of  clearing-house  statistics,   the   method 


National    Monetary     Commission 

of  bank  deposits,  and  the  method  of  getting  information 
direct  from  the  merchant. 

The  clearing-house  method. — The  first  method  consists, 
briefly,  in  noting  the  volume  of  clearings  from  time  to 
time  and  their  relation  to  the  estimated  volume  of  business 
done.  If  the  volume  of  clearings  increases  more  rapidly 
than  the  volume  of  business,  obviously  the  ratio  of  ex- 
changes settled  on  the  basis  of  credit  paper  is  increasing. 
This  method  was  first  employed  by  R.  H.  Inglis  Palgrave, 
esq.,  in  a  paper,  "Methods  of  Banking,"  published  in  the 
Journal  of  the  Statistical  Society  of  London  for  1873. 
Mr.  Palgrave  took  as  a  measure  of  the  increase  in  the 
volume  of  business,  the  increase  of  the  aggregate  exports 
and  imports  of  Great  Britain,  calling  the  sum  of  the  exports 
and  imports  for  1868,  100,  or  the  base.  The  index  num- 
ber for  the  aggregate  of  exports  and  imports  was  102  in 
1869,  106  in  1870,  116  in  1871,  and  129  in  1872.  Meantime 
the  clearings,  making  the  aggregate  clearings  of  1868  the 
base,  or  100,  as  in  the  case  of  exports  and  imports,  in- 
creased to  the  index  number  104  in  1869,  114  in  1870,  138 
in  1871,  and  171  in  1872.  Putting  the  matter  in  another 
way,  in  i860  the  aggregate  exports  and  imports,  or  the 
volume  of  business,  was  137  to  every  thousand  of  clear- 
ings. In  1869  it  was  134  to  the  thousand,  in  1870  it  was 
128,  in  1871  it  was  115,  in  1872  it  was  103. 

This  method  is  not  satisfactory.  It  merely  shows  the 
general  tendency  of  credit  paper  payments  and  they  can 
not  to  any  degree  show  the  character  of  the  business  done. 

It  is  doubtful,  too,  whether  this  method  is  applicable 
in    the    United    States,  for,  in  the    first    place,  we  have 


The     Use    of    Credit    instruments 

been  for  years  constantly  establishing  new  clearing  houses 
in  places  where  banks  formerly  exchanged  checks  by 
sending  them  to  one  another  with  their  own  messengers. 
In  other  words,  our  credit  system  is  growing  all  the  time. 
Moreover,  it  is  becoming  more  refined  and  perfect. 

Again,  this  method  would  hardly  be  applicable  to  the 
United  States,  because  the  volume  of  our  exports  and 
imports  is  affected  by  changes  in  our  tariff  legislation, 
whereas  in  England  that  element  of  disturbance  is  not 
present. 

Another  method  of  using  the  clearing-house  returns  for 
the  purpose  of  determining  the  proportion  of  credit  paper 
and  business  payments  was  employed  by  Prof.  Willard 
Fisher.'* 

The  method  is  to  determine  the  amount  of  credit  paper 
in  the  total  clearings.  This  may  be  done  by  computing 
from  the  amount  of  credit  paper  that  passes  through  the 
clearing  house  the  amount  that  is  probably  received  by 
all  the  banks  of  the  country,  both  those  which  are  mem- 
bers of  clearing  houses  and  those  which  are  not.  This 
sum,  whatever  it  is,  is  then  to  be  compared  with  the  esti- 
mated purchasing  power  of  money  in  active  circulation; 
that  is  to  say,  the  amount  of  the  money  outside  the  banks, 
multiplied  by  its  velocity  of  circulation  or  the  probable 
number  of  times  it  changes  hands  to  effect  a  given  volume 
of  business  in  a  given  time. 

Prof.  Willard  Fisher,  using  this  method,  came  to  the 
conclusion  that  probably  money  and  credit  transactions 
stood,  at  the  time  he  wrote,  in  the  ratio  of  about  i  to  i . 

»  See  Jourii.  Pol.  Econ.,  ,V39iff. 


National     Monetary     Commission 

Although  the  theory  of  this  method  is  excellent,  some 
of  the  necessary  data  is  very  difficult  to  get.  We  can 
determine  the  total  clearings  with  approximate  exact- 
ness, but  the  velocity  of  circulation  is  something  about 
which,  at  present,  we  know  very  little,  if  anything.  Our 
estimates  of  the  amount  of  money  in  circulation  are  also 
very  approximate.  Our  Treasury  Department  gives  the 
estimate  from  month  to  month,  and  the  figures  are  doubt- 
less as  good  as  can  be  obtained.  Nevertheless  they  are 
very  unreliable. 

The  bank-deposit  method. — The  second  method  of  deter- 
mining the  proportion  of  business  done  by  credit  paper  is 
that  of  finding  the  proportion  of  checks  and  other  credit 
instruments  in  the  bank  deposits.  The  general  theory 
underlying  this  method  is  that  the  deposits  in  the  banks 
represent  in  character  and  volume  the  receipts  of  the 
merchants  or  tradesmen;  that  these  receipts  are,  of  course, 
from  their  customers  and,  therefore,  represent  fairly  the 
means  of  payment  used  by  the  customers.  This  method 
is  the  one  which  has  been  most  extensively  employed, 
especially  in  the  inquiries  made  in  this  country,  in  1881, 
1890,  1892,  1894,  and  1896. 

Of  course,  the  questions  obviously  arise  whether  the 
bank  deposits  do  fairly  represent  the  receipts  of  the  mer- 
chants for  sales,  and  whether  the  business  done  by  the 
merchants,  the  statistics  of  whose  bank  deposits  are  col- 
lected, are  really  representative  of  the  whole  business 
of  tlie  country.  These  and  other  points  will  be  discussed 
in  connection  with  the  details  of  the  present  report.  It 
is  important  to  bear  in  mind,  however,  that,  while  the 


The     Use    of    Credit    Instruments 

deposits  of  the  merchants  may  fairly  enough  represent  the 
habits  of  their  customers  as  to  paying  by  check  and, 
therefore,  the  volume  of  their  business  paid  for  in  this 
way,  the  habits  of  their  customers  will  depend  on  a  variety 
of  circumstances.  In  England,  for  example,  banks  do 
not  usually  accept  small  accounts.  Consequently,  the 
average  size  of  the  checks  drawn  in  England  is  larger  than 
is  the  case  where  many  banks  are  glad  to  take  almost  any 
account  that  may  be  offered.  Our  multitude  of  small 
banks  facilitates  the  carrying  of  small  accounts  and  the 
payment  by  check.  Of  course,  the  largest  checks  in  the 
English  banks,  as  in  our  own,  are  those  used  in  stock- 
exchange  transactions.  In  1885  Mr.  Lubbock  "  selected 
1,500  checks  which  passed  through  his  bank,  representing 
a  total  sum  of  £871,000  and  giving  an  average  for  each 
check  of  £579.  This  was  on  a  settling  day  and  included 
stock-exchange  checks.  On  an  ordinary  day  i  ,000  checks 
examined  gave  an  average  of  £299.  Again,  8,500  clear- 
ing checks  gave  an  average  of  over  £300.  Mr.  Lubbock 
remarked  that  checks  on  bankers  who  do  not  clear  are 
much  smaller  in  amount,  but  do  not  generally  represent 
commercial  transactions.  By  this  he  undoubtedly  means 
what  we  might  call  wholesale  trade  and  stock  exchange 
dealings.  He  reported  that  1,000  checks  of  this  kind 
averaged  £80  each.  Again,  5,848  checks  on  country  banks 
gave  an  average  of  £28  each,  and  this  is  the  lowest  that 
Mr.  Lubbock  mentions.  A  little  later,  Mr.  Palgrave  said 
that  "the  number  of  checks  under  £5  is  so  small  as  not 
materially  to  supplant  the  use  of  coin,  which  is  chiefly 
used  for  retail  trade  and  wages." ^ 


o  Journ.  Statis.  Soc,  28: 364.  b  Idem,  36: 86. 


National    Monetary     Commission 

In  1881  R.  W.  Barnett,  esq.,  wrote  that  "out  of  10,000 
checks  passing  through  the  country  clearing  it  was  ascer- 
tained recently  that  25  per  cent  were  for  less  than  £5, 
whilst  the  average  of  the  whole  was  less  than  £30."'*  In 
this  country  checks  are  not  infrequently  drawn  for  as 
small  amounts  as  50  or  even  25  cents,  and  occasionally  for 
less,  although  the  average  is  much  higher.  Hence,  it  is 
obvious  that  the  field  of  the  check  is  a  far  larger  one  with 
us  than  it  is  in  England.  Merchants'  deposits  will  there- 
fore represent  more  accurately  the  methods  of  payment 
in  this  country  than  would  be  the  case  in  England.  Con- 
sequently, greater  reliance  can  be  placed  on  the  returns 
from  our  banks  for  the  purpose  of  such  an  inquiry.  Less 
allowance  has  to  be  made  with  us  in  the  study  of  bank 
deposits  for  business  of  merchants  who  do  not  bank  than 
would  be  the  case  in  England. 

The  fact  that  we  use  checks  for  smaller  sums  than  the 
people  of  other  countries  is  shown,  too,  by  the  large  number 
of  cases  in  which  wages  are  paid  by  check,  as  seen  by  Tables 
XX  to  XXV.  The  total  amount  of  wages  paid  by  check 
in  the  week  ending  March  16,  so  far  as  returns  were  made, 
aggregated  $40,595,874.  Many  of  these  checks,  doubtless 
most  of  them,  were  for  amounts  much  smaller  than  people 
in  England  would  think  of  drawing  checks  for. 

Still  again,  our  small  banks  do  not  as  a  rule  require 
customers  to  carry  a  fixed  balance.  While  that  practice 
is  doubtless  necessary  and  has  grown  considerably  in  large 
places,  our  country  banks  seldom  require  it.  As  has 
already  been  remarked,   this   facilitates   the  keeping  of 

<»  Journ.  Inst.  Bankers,  2:78. 


The     Use    of    Credit    Instruments 

small  accounts  and  promotes  what  may  be  called  the  "check 
habit." 

From  all  these  considerations  it  would  seem  that  the 
method  of  securing  bank  deposits  for  determining  the 
proportion  of  business  done  on  credit  is  more  likely  to 
yield  accurate  results  in  this  country  than  elsewhere. 
When  we  come  to  discuss  the  deposits  of  retail  merchants, 
reasons  will  be  given  for  thinking  that  their  bank  deposits 
really  do  represent  the  character  of  their  business  receipts. 
Hence  it  is  not  necessary  to  go  into  that  subject  here. 

Method  of  getting  information  direct  from  merchants. — A 
third  method  of  studying  this  subject  is  that  of  securing 
direct  replies  from  merchants.  This  is  impracticable  on 
a  large  scale.  Multitudes  of  merchants,  especially  those 
whose  business  is  small,  do  not  keep  accounts  which  would 
give  a  clear  idea  of  the  character  of  their  receipts.  No 
means  exist  for  the  collection  of  such  data  by  any  central 
authority  or  authorities,  or  to  afford  any  guaranty  of 
their  accuracy  when  collected.  This  method  of  studying 
the  subject  can  be  used  only  in  a  small  measure  in  check- 
ing up  the  other  methods.  It  has  been  used  for  this 
purpose  in  the  present  inquiry.  A  number  of  cases  will  be 
mentioned  where  the  merchants  themselves  have  reported 
their  receipts  so  that  it  is  possible  to  determine  exactly  the 
proportion  of  credit  paper  in  a  month's  business. 

HISTORY    OF    INQUIRIES    PREVIOUSLY    MADE. 

As  has  been  remarked,  attention  was  early  directed  to 
inquiries  concerning  the  volume  of  credit  transactions, 
more  especially  the  volume  of  business  transactions  set- 
tled by  means  of  credit  paper. 

7071 — 10 2  II 


National    Monetary     Commission 


ENGLISH   INVESTIGATIONS. 

The  Slater  inquiry. — So  far  as  the  present  writer  knows, 
the  first  important  information  on  the  subject  of  the  pro- 
portion of  credit  documents  used  in  business  payments 
was  furnished  in  a  report  of  the  committee  of  the  House 
of  Commons  appointed  to  investigate  the  crisis  of  1857. 
The  report  includes  an  analysis  of  the  operations  of  the 
banking  house  of  Morrison,  Dillon  &  Co.,  as  furnished  by 
Mr.  William  Slater,  for  the  year  1856.  Mr.  Slater  had 
furnished  the  committee  a  statement  of  the  receipts  and 
payments  of  his  bank,  classified  so  as  to  show  the  propor- 
tion in  which  £1,000,000  of  receipts  and  expenditures 
were  made  in  money  and  in  credit  documents,  respectively. 
The  information  furnished  was  as  follows :  ° 

Receipts: 

Bankers'  drafts   and    mercantile   bills,   payable 

after  date £533,  596 

Checks  payable  on  demand 357,  715 

£891,311 

Bank  of  England  notes 68,  554 

Country  bankers'  notes 9,  627 

Gold 28,  089 

Silver  and  copper i,  486 

Post-office  orders 933 

108, 689 

Grand  total i,  000,  000 

Payments: 

Bills  of  exchange 302,  674 

Checks  on  London 663,  672 

966, 346 

Bank  of  England  notes 22,  743 

Gold 9.427 

Silver  and  copper i,  484 

:i3„  654 

Grand  total ._ i,  000,  000 

"  MacLeod's  Theory  and  Practice  of  Banking,  i :  299. 


The     Use    of    Credit    Instruments 

The  Babbage  inquiry. — The  next  attempt  to  secure  sta- 
tistics showing  the  proportion  in  which  checks  and  other 
credit  instruments  enter  into  business  payments  was  made 
by  Charles  Babbage,  esq.,  who  read  a  paper  before  the 
Statistical  Society  of  London  in  1855  on  "An  Analysis 
of  the  Statistics  of  the  Clearing  House.""  This  inquiry 
was  made  by  what  has  been  called  above  the  "clearing- 
house method."  Mr.  Babbage  attempted,  among  other 
things,  to  determine  "the proportion  of  payments  made  in 
bank  notes  b}^  the  public,  both  in  town  and  in  the  coun- 
try." It  appeared  from  the  data  secured  by  Mr.  Babbage 
at  that  time  that  the  percentage  of  credit  paper  varied 
with  the  volume  of  the  clearings;  or,  as  he  puts  it,  "the 
larger  the  clearing  the  smaller  the  percentage  of  bank 
notes  used  in  the  operation."  He  found  that  5.49  per 
cent  of  the  bank  notes  occurred  in  the  average  of  the 
thirty  largest  total  clearings,  this  average  being 
£4,553,600;  while  8.45  per  cent  occurred  in  the  average 
of  the  thirty  smallest  clearings,  which  average  was 
£2,006,800.  He  found  that  of  the  clearings  discussed  by 
him,  the  average  for  the  days  of  settlement  on  the  Eng- 
lish Stock  Exchange  was  £4,504,400,  of  which  6.42  per 
cent  were  bank  notes ;  the  average  for  the  days  of  settle- 
ment at  the  foreign  stock  exchange  was  £4,148,900,  of 
which  5.66  per  cent  were  bank  notes;  that  for  settlement 
days  of  inland  bills  of  exchange  amounted  to  £4,092,100, 
of  which  6.61  per  cent  were  notes. 

The  Palgrave  inquiry. — The  next  inquiry  probably  was 
that  of  W.  Langton,  esq.,  general  manager  of  the  Manches- 
ter and  Salford  Bank,  Manchester,  England.    Mr.  Langton 

ajourn.  Statis.  Soc.  of  London,  19:28!?. 
13 


National    Monetary     Commission 

reported  figures  in  1873  to  R.  H.  Inglis  Palgrave,  esq., 
for  the  years  1859,  1864,  and  1872,  and  other  figures 
furnished  at  a  later  date  by  Mr.  T.  R.  Wilkinson  for  Pro- 
fessor Jevons.  Mr.  Palgrave  reported  on  the  matter  in 
an  address  entitled  "Notes  on  Banking  in  the  United 
Kingdom,  Sweden,  Denmark,  and  Hamburg,"  etc.,  read 
before  the  Statistical   Society   of    London   in    February, 

1873-'^ 

Mr,  Palgrave  reported  from  Mr.  Langton's  figures  that 
in  1859  cash  payments,  or  payments  in  coin  and  notes, 
were  about  53  per  cent  of  the  total  turnover  of  his  bank; 
in  1864,  42  per  cent,  and  in  1872,  32  per  cent.  By 
turnover  Mr.  Langton  meant  the  total  receipts  and  total 
out-payments  of  his  bank.  These  figures  show  a  gradual 
increase  in  the  proportion  of  credit  paper.  Mr.  Langton 
pointed  out  what  most  investigators  since  have  ignored, 
the  influence  of  the  amount  and  manner  of  payment  of 
wages  on  the  proportionate  use  of  credit  paper. 

In  the  article  in  which  he  quotes  the  figures  of  Mr. 
Langton,  Mr.  Palgrave  also  attempts  to  show  in  a  general 
way  the  growth  of  credit  exchanges  by  the  use  of  clearing- 
house statistics,  the  method  which  has  been  described 
above.  He  remarks,  "If  we  compare  the  general  circum- 
stances, we  shall  see  how  completely  the  circulation  of  the 
country  has  in  recent  times  passed  from  being  a  circu- 
lation in  notes  to  being  a  circulation  in  cheques."'* 

He  points  out  in  this  article  that  the  increase  in  bank 
clearings  has  been  greater  than  the  increase  in  the  coun- 
try's trade,  and  thus  infers  that  an  increased  proportion 

o  Journ.  Statis.  Soc,  36:27fT.  b  Idem,  36:80. 


14 


The     Use    of    C  ?•  e  d  i  t    I  n  s  t  r  u  m  e  n  t  s 

of  the  country's  business  was  settled  through  the  banks 
by  credit  paper. 

The  Lubbock  inquiry. — The  next  important  inquiry  into 
the  subject  was  that  made  by  Sir  John  Lubbock  and 
reported  to  the  Statistical  Society  in  June,  1865.'^  The 
article  is  entitled  "Country  Clearing." 

Sir  John  took  the  amount  of  £23,000,000,  the  sum 
which  passed  through  his  bank  during  the  last  few  days 
of  the  year  1864,  analyzed  it,  and  found  it  was  made  up 
as  follows: 


Clearing 

Checks  and  bills  not  passing  through  clearin 

Bank  of  England  notes 

Coin 

Country  notes 

Total 


£16,  346,  000 

70.8 

5,394,000 

23-4 

r,  137,  000 

4-9 

139,  000 

.6 

79, 000 

■3 

23.095. 000 


Per  cent. 


This  showing  was  at  Sir  John  Lubbock's  own  bank  in 
Birmingham.  In  order  to  ascertain  the  practice  as  to 
method  of  payments  in  London,  Sir  John  took  the  amount 
of  £17,000,000  paid  in  by  his  London  customers  and 
found  that  it  was  made  up  as  follows: 


Checks  and  bills  on  clearing  bankers I     £j3.  ooo,  ooo 


Checks  and  bills  on  ourselves 

Checks  and  bills  on  other  banks. 

Bank  of  England  notes 

Country  bank  notes 

Coin 


Total. 


1 , 600, 000 
I , 400, 000 

674, 470 
9,  470 

117.927 


Per  cent. 


16.  802,  000 


ojourn.  Statis.  Soc,  28  :  361. 


15 


National    Monetary     Commission 

In  discussing  the  last  table,  Sir  John  is  of  the  opinion 
that  the  amount  of  bank  notes  is  too  large,  because  the 
note  account  includes  notes  drawn  by  the  bank  itself  to 
replenish  its  daily  supply  and  in  so  far  did  not  represent 
bills  paid  in  by  customers.  He  deducted  this  amount, 
£266,000,  but  added  as  the  amount  of  notes  paid  in  for 
collection,  discounts,  and  loans  on  security  the  sum  of 
£2,460,686.  With  these  alterations  made  he  came  to  the 
conclusion  that  "out  of  £19,000,000  credited  to  our  town 
customers,  £408,000  consisted  of  bank  notes,  £79,000  of 
country  bank  notes,  and  £118,000  of  coin,"  making  the 
percentages  96.8  for  checks  and  bills,  0.6  for  coin,  and 
2.6  for  bank  notes. 

The  Martin  inquiry. — In  1880  John  Biddulph  Martin, 
esq.,  banker,  read  a  paper  before  the  Institute  of  Bankers** 
entitled  "An  Inquiry  into  the  History,  Functions,  and 
Fluctuations  of  Bank-Note  Circulation  in  the  United 
Kingdom,  Continental  Europe,  and  the  United  States." 
In  this,  after  quoting  the  figures  of  Mr.  Slater,  Mr.  Bab- 
bage,  and  Mr.  Lubbock,  he  gave  the  percentages  of  re- 
ceipts in  his  own  bank  for  six  working  days  in  each  month. 
The  dates  selected  were  from  the  20th  to  the  26th,  as 
nearly  as  might  be,  so  "as  to  avoid  the  disturbing  influ- 
ences of  the  fourth  and  of  the  stock  exchange  settling  day." 
Mr.  Martin's  figures  are  for  1878-79  and  are  as  follows: 


Receipts. 

Payments. 

Bills  and  checks 

Per  cent. 

96.  S 

2.6 
9 

Per  cent. 

Notes ... 

Coin 

0  Jour.  Inst.  Bankers,  i 
16 

273ff- 

The     Use    of    Credit    Instruments 

The  Pownall  inquiry. — Some  figures  for  London  in  1864 
are  reported  by  G.  H.  Pownall,  esq.,  in  an  article  read 
before  the  Institute  of  Bankers,  in  1881,  entitled  "Pro- 
portional Use  of  Credit  Documents  and  Metallic  Money 
in  English  Banks."" 

Mr.  Pownall  reports  the  following  returns  as  made  up 
from  the  "Town  Counter"  in  1864:  Coin,  0.6  percent; 
notes,  2.6  per  cent;  checks  and  bills,  96.8  per  cent.  He 
gives  the  following  tables  as  a  result  of  his  inquiry: 

Proportional  amounts  of  different  kinds  of  money  and  credit. 

Documents  received  by  country  banks  in  261  places:  Percent 

Gold  (sovereigns  and  half  sovereigns) 12.  41 

Silver  (with  or  without  copper) 2.79 

Bank  of  England  notes 10.  16 

Country  bank  notes 1.78 

Cheques  on  the  same  town  or  district 26.  75 

All  other  cheques  and  bills 46.  1 1 


Gold  (sovereigns  and  half  sovereigns). 

Silver  (with  or  without  copper) 

Bank  of  England  notes 

Country  bank  notes 

Cheques  on  the  same  town  or  district. 
All  other  cheques  and  bills 


Documents  received  by  banks  in — 


61  agri- 
cultural 
places. 


Per  cent. 
86 
82 
3. 


Towns 

excluding 

agricultural 

places. 


Per  cent. 
14.07 

3-  24 
13-  22 

I- 25 
24.90 
43- 32 


The  metro- 
politan 
area. 


Per  cent. 
25. 218 

10. 982 
00. 040 
22.  494 
41. 266 


The  first  table  shows  that  in  the  country  banks  in  261 
places  in  Great  Britain  nearly  73  per  cent  of  the  deposits 
on  a  certain  day  were  in  checks  and  bills,  27  per  cent 
being  checks  on  the  same  town  or  district.     Mr.  Pownall 


ojour.  Inst.  Bankers,  2:629. 
17 


National    Monetary     Commission 

further  makes  a  careful  classification  to  show  the  relative 
use  o^  credit  paper  in  agricultural  towns  and  the  metro- 
pol'  an  area.  From  the  second  of  his  tables  it  appears 
that  nearly  83  per  cent  -of  the  deposits  in  61  agricultural 
places  were  in  checks  and  bills,  68  per  cent  were  of  a  simi- 
lar character  in  the  towns,  and  64  per  cent  in  the  metro- 
pc  iitan  area. 

Mr.  Pownall's  article  shows  that  at  the  time  at  which 
he  wrote  the  deposits  of  checks  and  bills  in  banks  in  the 
suburbs  of  Manchester  were  a  little  over  45  per  cent.  He 
further  classified  the  proportional  receipts  of  money  and 
credit  paper  received  by  the  banks  of  Manchester  and  its 
suburbs  according  to  the  trades,  including  cotton,  wool, 
iron,  pottery,  and  silk.  He  finds  that  in  the  bank  receipts 
from  these  trades  the  proportion  of  checks  and  bills 
was  as  follows:  Cotton,  61.5;  wool,  68.9;  iron,  67.9;  pot- 
tery, 71.8;  silk,  65.7.  Other  valuable  details  are  given  in 
this  excellent  article,  but  it  is  not  necessary  to  repeat 
them  here  because  the  English  practice  differs  somewhat 
from  our  own  in  the  minimum  amount  for  which  checks 
are  commonly  drawn. 

CRITICISM    OF    ENGLISH    INQUIRIES. 

The  English  investigations,  although  interesting,  are 
hardly  comparable  in  extent  with  those  of  this  country 
or  valuable  as  a  basis  for  conclusions  applicable  to  this 
country.  For,  in  the  first  place,  the  number  of  banks 
from  which  statistics  were  obtained  was  small  in  each 
inquiry.  In  the  second  place,  the  classes  of  people  who 
\J  j  use  the  banks  in  England  are  only  the  larger  merchants 
the  great  business  firms,  and  wealthy  individuals.     The 

18 


The     Use    of    Credit    Instruments 

English  banks  would  not  show  as  large  a  proportion  of 
small  checks  as  the  deposits  of  our  own  banks.  This  was 
certainly  true  at  the  time  the  English  investigations  re- 
ferred to  were  made,  for  it  was  not  until  1854  that  it  was 
legal  to  issue  drafts  for  a  less  sum  than  20s.,  and  "long 
after  that  time  great  uncertainty  appears  to  have  existed 
on  the  subject."'^  Moreover,  we  know  from  these  inqui- 
ries that  when  they  were  made  wages  were  paid  and  retail 
trade  carried  on  more  largely  with  coin,  which  forms  so 
large  a  proportion  of  the  English  circulation. 

Another  defect  of  the  English  statistics  is  their  com- 
paratively non-representative  character.  With  the  ex- 
ception possibly  of  those  gathered  by  Mr.  Pownall,  the 
statistics  presented  by  the  various  writers  are,  so  to  speak, 
"sample  cases,"  and  it  may  be  doubted  whether  they 
were  representative.  They  certainly  represent  fairly  the 
practice  of  merchants  and  the  wealthy  classes  in  England 
with  reference  to  the  use  of  bank  accounts  and  the  issue 
of  checks.  Can  we  be  sure  that  they  represent  the 
method  of  making  payments  used  by  the  larger  propor- 
tion of  the  English  people,  or  that  used  in  settling  the 
larger  proportion  of  British  trade?  Finally,  there  is  no 
doubt  that  the  returns  given  by  most  of  the  writers  in- 
clude such  items  as  "bills  paid  in  for  collection  and  dis- 
count, loans  on  security,"  and  other  items  which  should 
not  be  included  if  what  we  are  tr^ang  to  determine  is  the 
volume  of  business  payments  made  from  day  to  day  by 
credit  paper. 

OR.  W.  Barnett,  "Effect  of  the  Development  of  Banking  Facilities 
¥pon  the  Circulation  of  the  Country,"  Jour.  Inst.  Bankers,  2:  78. 


19 


National    Monetary     Commission 

AMERICAN    INVESTIGATIONS. 

The  Gar-field  inquiry. — Our  next  information  on  this 
subject  comes  from  a  former  President,  then  a  Repre- 
sentative, James  A.  Garfield.  In  his  speech  on  Resump- 
tion, November  i6,  1877,  he  stated  that  when  serving  as 
chairman  of  the  Committee  on  Banking  and  Currency,  in 
1 87 1,  he  had  become  interested  in  the  matter  and  had 
asked  the  Comptroller  of  the  Currency  to  secure  for  him 
data  on  the  proportionate  use  of  credit  paper  and  money 
from  52  selected  banks.  His  remarks  as  to  the  results 
are  as  follows:  "I  selected  three  groups.  The  first  was 
the  city  banks.  The  second  consisted  of  banks  in  cities 
of  the  size  of  Toledo  and  Dayton,  in  the  State  of  Ohio. 
In  the  third  group,  if  I  may  coin  a  word,  I  selected  the 
'  coimtriest '  banks — the  smallest  that  could  be  found  at 
points  away  from  railroads  and  telegraphs.  The  order 
was  that  those  banks  should  analyze  all  their  receipts  for 
six  consecutive  days,  putting  into  one  list  all  that  can  be 
called  cash — either  coin,  greenbacks,  bank  notes,  or  cou- 
pons— and  into  the  other  list  all  drafts,  checks,  or  com- 
mercial bills.  What  was  the  result?  During  these  six 
days  $157,000,000  were  received  over  the  counters  of  the 
52  banks  and  of  that  amount  $19,370,000 — 12  per  cent 
only — in  cash,  and  88  per  cent — that  vast  amount  repre- 
senting every  grade  of  business — was  in  checks,  drafts, 
and  commercial  bills."'' 

The  inquiry  of  188 j. — In  1881  John  J.  Knox,  while  he 
was  still  Comptroller  of  the  Currency,  made  an  inquiry 
into  the  proportion  of  bank  receipts  made  by  credit  paper 
on  two  dates,  June  30  and  September  17,  1881.^     His 


<^  Congressional  Record,  Nov.  i6,  1877,  p.  462. 

^See  Report  of  Comptroller  of  Currency,  1881 

20 


The     Use    of    Credit    Instruments 

request  for  statistics  was  made  of  the  national  banks  only, 
and  called  for  classified  returns  of  all  their  receipts  and 
payments.  In  June,  2,106  national  banks  were  in  opera- 
tion and  1,966  sent  in  replies.  In  September,  2,132  banks 
were  in  operation  and  all  sent  in  returns.  The  following 
table  gives  a  summary  of  the  results: 

Analysis  of  national-bank  receipts,  June  jo  and  September  17,  1881. 


June  30  (1,966  banks). 

Sept.  17  (2,132  banks). 

Amount. 

Per  cent. 

Amount. 

Per  cent. 

Checks,  drafts,  and  bills 

Clearing-house  certificates 

Paper  money 

$261, 271, 666 
9, 582,500 

11,554.  747 

I,  864,  105 

440,998 

91.  77 

3.36 

4.06 

.65 

.16 

$271,036,525 

6.592,337 

13.026. 570 

4,  078,  044 

500, 301 

91.8s 
2.  24 

4- 36 
1.38 

.  17 

1 

Total 

284,  714,  016 

100. 00 

295. 233. 779 

100. 00 

It  appears  that  on  the  date  of  the  first  inquiry  the  gold 
coin  in  the  receipts  of  the  banks  concerned  was  sixty-five 
one  hundredths  of  i  per  cent,  and  the  total  receipts  of 
silver  coin  were  sixteen  one  hundredths  of  i  per  cent, 
while  the  paper  currency  amounted  to  4.06  and  credit 
documents  to  91.77  per  cent. 

The  Comptroller's  conclusion  from  the  June  inquiry  was 
that  95.13  per  cent  of  the  total  receipts  of  the  banks  were 
in  credit  documents.  Curiously  enough,  however,  he 
includes  clearing-house  certificates  among  the  credit  docu- 
ments.    It  is  not  clear  why  this  should  be  done. 

On  September  17  of  the  same  year,  the  date  of  the 
second  inquiry,  Mr.  Knox  found  that  of  the  receipts  of 
2,132  banks  there  were  1.38  per  cent  in  gold  coin,  0.17  per 
cent  in  silver,  4.36  in  paper,  and  91.85  per  cent  in  checks, 
drafts,  and  bills.    His  conclusion  from  the  later  figures  was 


National    Mo7tetary     Commission 

that  94.09  per  cent  of  the  receipts  of  the  banks  was  in  credit 
documents,  including  as  before  clearing-house  certificates. 

In  this  inquiry  the  Comptroller  was  careful  to  classify 
separately  the  returns  from  banks  in  New  York  City  and 
other  reserve  cities  and  the  banks  elsewhere.  In  the 
June  inquiry  the  proportion  of  credit  documents  in  the 
banks  not  in  reserve  cities  was  81.72  per  cent,  as  against 
98.7  per  cent  in  New  York  City  and  94.38  per  cent  in 
the  other  reserve  cities.  The  September  inquiry  gave  for 
the  respective  classes  81.74  P^r  cent,  98.8  per  cent,  and 
92.35  per  cent.  These  figures  thus  show  the  inaccuracy  of 
the  statement  not  infrequently  made  in  the  past  that 
over  90  per  cent  of  the  whole  business  of  the  country  was 
done  with  credit  documents.  The  81  per  cent  of  the 
"banks  elsewhere"  should  have  made  students  suspicious. 

The  Comptroller  further  presented  a  table  showing  the 
proportion  of  checks,  drafts,  and  bills  in  the  receipts  of 
the  two  dates  selected,  by  States.  This  table  shows  that 
according  to  the  inquiry  of  June,  1881,  92  per  cent  w-as 
the  largest  proportion  of  credit  documents  in  the  banks 
of  any  State  or  Territory  and  was  accredited  to  New 
Jersey,  and  the  smallest  percentage  appeared  in  the  returns 
of  Wyoming,  as  33.6  per  cent.  In  the  inquiry  of  Septem- 
ber of  the  same  year,  New  Jersey  again  appears  with  the 
largest  percentage  of  credit  documents,  91  per  cent;  while 
Nevada  shows  the  smallest,  only  8.2  per  cent.  Both  in 
the  case  of  Wyoming  and  Nevada  the  amounts  from  which 
the  percentages  were  drawn  were  so  insignificant  that  the 
two  places  may  be  left  out  of  the  consideration.  In  gen- 
eral, the  tables  showed  that  checks  in  the  bank  returns  of 


The     Use    of    Credit    I  n  s  t  r  u  m  cnts 

the  States  which  reported  in  the  year  1881  largely  ran  be- 
tween 65  and  85  per  cent. 

The  inquiry  of  i8go. — The  inquiry  of  1881  was  not  re- 
peated until  1890,  when  the  Comptroller,  Mr.  E.  S.  Lacey, 
thought  it  wise  to  secure  further  information.  Accord- 
ingly he  asked  3,438  national  banks  to  classify  tlieir 
receipts  for  July  i  and  September  17.  The  blank  sent  out 
called  for  total  receipts,  distinguishing  clearing-house  cer- 
tificates and  exchanges  for  clearing  house  from  checks, 
drafts,  and  other  credit  paper.  The  results  obtained  were 
presented  in  the  usual  tables,  from  which  it  appears  that 
the  total  receipts  of  the  3,364  banks  from  which  replies 
were  received  for  July  i,  were  $421,824,726.  Of  this  sum 
44.90  per  cent  was  in  checks,  drafts,  etc.,  excluding  ex- 
changes for  clearing  house.  Including  clearing-house 
paper,  the  percentage  was  92.  The  following  table  *  gives 
the  details  for  both  dates: 


Character  of  receipts. 


Gold  coin 

Silver  coin 

Gold  treasury  certificates 

Silver  treasury  certificates 

Legal-tender  notes 

National-bank  notes 

United   States  certificates  of   de- 
posit for  legal  tenders 

Checks,  drafts,  etc 

Clearing-house  certificates 

Exchanges  for  clearing  house 

Miscellaneous 


July    I,    1890    (3,364 
banks) . 


Amount. 


S3. 
I, 
6. 
6, 

7. 

S. 


4, 
194. 


726,605 
352,647 
427.973 
442,638 
881,786 
244,  967 

520, 000 
408, 708 
391.  177 
290, 203 
138, 022 


Total 421,  824,  726 


46 


September  17,  1890 
(3,474  banks). 


Amount.         Pef  oeat 


S3. 702. 772 
r, 399. 991 
6.  159. 30s 
5,908, 714 
7, 665, 666 
4.371.778 

105. 000 

168,803. 756 

2,  428,834 

126, 596, 873 

135.562 


327,278,251 


38 


"Finance  Report  for  1890,  p.  383. 
23 


National    Monetary     Commission 

Returns  were  presented  as  usual  for  the  reserve  cities 
and  the  banks  outside  of  reserve  cities.  The  total  receipts 
of  the  banks  were  $94,000,000  less  in  September  than  in 
July,  and  practically  all  of  this  was  in  items  "  which  repre- 
sent substitutes  for  money."  The  larger  proportion  of  it 
was  in  clearing-house  certificates  and  exchanges.  The 
percentage  of  checks,  drafts,  etc.,  actually  received  by 
the  banks  was  larger  in  September,  as  the  table  shows, 
although  the  total  receipts  were  less.  Other  tables  classi- 
fied the  facts  in  different  ways  to  bring  out  the  comparison 
between  them  and  the  data  obtained  in  188 1.  It  is  to  be 
noted,  however,  that  one-half  of  the  total  receipts  came 
from  47  banks  in  New  York  City. 

The  inquiry  of  1892. — This  inquiry,  like  the  two  pre- 
ceding ones,  was  based  on  reports  obtained  from  national 
banks.  The  purpose  of  the  Comptroller,  Mr.  A.  B.  Hep- 
burn, in  making  the  inquiry  was  "to  furnish  reliable  data 
from  which  the  public  could  see  and  realize  how  small  a 
percentage  of  business  transactions  are  represented  by 
actual  money,  and  how  impossible  it  is  for  the  Government 
to  furnish  a  volume  of  currency  sufficient  to  meet  the 
wants  of  the  people  at  all  times — that  is,  in  times  of 
general  distress  or  quasi-panic."  The  Comptroller  goes 
on  to  say:  "Over  90  per  cent  of  all  business  transactions 
are  done  by  means  of  credit.  When  the  public  lose 
confidence  and  credit  is  impaired  and  refused,  over  90 
per  cent  of  all  business  transactions  are  directly  affected. 
It  is  easy  to  realize  how  impossible  it  is  for  the  remaining 
10  per  cent  of  money  to  carry  on  the  business  of  the  country 
without  monetary  stringency  and  financial  distress. "*• 

"Comptroller's  Report,  1892,  p.  32. 
24 


The     Use    of    Credit    Instruments 

Of  the  3,759  banks  from  which  reports  were  requested, 
data  were  secured  from  3,473  in  time  for  use  in  the  Comp- 
troller's report.  These  data  gave  the  total  receipts  of  the 
banks  on  September  15  and  the  following  table  gives  a 
brief  summary  of  the  results : 


Class  of  receipts. 


Gold  coin 

Silver  coin 

Certificates,  gold,  and  silver 

United  States  notes  and  bank  notes 

Currency  certificates 

Checks,  etc 

Clearing-house  certificates  and  exchanges  o  . 

Total... 


Amount. 

Per  cent. 

$2,907,017 

.88 

1.372.054 

•  41 

9. 944. 3SS 

3   00 

14, 661 , 266 

4.43 

2, 210, 000 

.67 

iS4.9S9,oS9 

46,  79 

145.  151.462 

43-82 

331,205,213 

100.  00 

"Includes  "  miscellaneous"  items  of  $586,000. 

The  Comptroller  draws  the  conclusion  that  9.39  per 
cent  of  transactions  are  represented  by  "cash,"  and  91.61 
by  checks,  bills,  etc.  He  presents  a  table  showing  the 
receipts  of  the  national  banks  in  the  central  reserve  cities, 
and  the  proportion  of  credit  instruments,  together  with 
figures  for  3,144  country  banks.  From  this  table  it 
appears  that  the  country  banks  received  73.93  per  cent 
of  their  receipts  in  checks,  on  September  15,  1892.  The 
tables  show  the  somewhat  astonishing  fact  that  while  the 
percentage  of  total  receipts  formed  by  checks  was  46.79, 
the  percentage  of  checks  in  the  receipts  of  the  country 
banks  was  73.93.  The  percentage  of  checks  in  48  New 
York  banks  was  28.43,  in  21  Chicago  banks  52.12,  and  in 
8  St.  Louis  banks  42.26.  The  large  aggregate  proportion 
of  "credit  payments"  reported  for  the  reserve  cities  is 
made  by  the  machinery  of  the  clearing-house  exchanges. 


25 


National     Monetary     C  o  m  m  i  s  s  i  o  7i 

From  another  table  given  in  this  report  it  appears 
that  the  smallest  percentage  of  checks  in  the  receipts  of 
banks  on  the  date  in  question  was  in  Oklahoma  Territory, 
where  it  was  42.37;  the  largest  was  95.64  in  the  returns 
from  Arizona,  while  Connecticut  showed  92.3,  Colorado 
92.11,  and  Rhode  Island  92.04. 

The  Comptroller  calls  attention  to  the  fact  that  as 
contrasted  with  the  inquiry  of  1881  the  returns  of  1892 
for  New  York  City  indicate  "a  marked  increase  in  the 
amount  of  paper  currency  received."  The  amount  in  the 
retiuns  of  September,  1 881,  was  sixty-five  one-hundredths 
of  I  per  cent,  while  in  the  returns  of  1892  it  was  7.53  p>er 
cent.  He  noted  also  a  marked  diminution  in  the  propor- 
tion of  receipts  of  checks  and  drafts  as  between  the  two 
dates,  "the  average  per  cent  for  the  two  days  in  1881 
being  2.91  per  cent  greater  than  the  average  for  the  two 
days  in  1890;  September  15,  1892,  is  3.28  per  cent  less 
than  September,  1890." 

The  inquiry  of  1894. — The  conclusion  from  the  inquiries 
thus  far  discussed,  as  it  was  given  in  the  public  press  and 
elsewhere,  was  to  the  effect  that  over  90  per  cent  of  the 
business  of  the  country  was  done  on  a  credit  basis,  so 
that  the  need  for  money  was  small.  During  the  next  few 
years  the  monetary  agitation  was  intense  and  this  state- 
ment in  its  broad  form  was  severely  challenged,  less  as  a 
matter  of  fact,  however,  than  because  of  the  inference 
drawn  from  it.  It  was  urged,  not  only  by  those  who  were 
insisting  on  a  larger  volume  of  currency,  but  by  careful 
students  of  the  question,  that  the  large  proportion  of 
credit  transactions  shown  by  bank  receipts  did  not  by 


26 


The     Use    of    Credit    Instruments 

any  means  disprove  the  need  for  a  larger  volume  of  cur- 
rency. It  was  urged,  as  Francis  A.  Walker '^  pointed 
out,  that  "in  spite  of  barter  and  in  spite  of  credit  a  very 
large  part,  in  most  countries  by  far  the  largest  part,  in 
many  countries  almost  the  whole,  of  retail  trade  is  still 
conducted  by  the  use  of  money;  and  this  is  after  all  the 
vital  thing." 

The  statement  that  the  world  over  retail  trade  is  con- 
ducted by  the  use  of  money  is  in  the  main  correct. 
In  order  to  test  it  the  present  writer  suggested  to  the 
Comptroller  of  the  Currency,  Hon.  James  H.  Eckels,  the 
expediency  of  making  an  inquiry  into  the  character  of 
deposits  made  in  the  national  banks  of  the  country  by 
selected  classes  of  retail  traders.  The  classes  selected 
were  those  on  whose  goods  between  70  and  80  per  cent  of 
the  income  of  the  laboring  people  of  the  country  is  spent, 
as  shown  by  the  reports  of  the  Commissioner  of  Labor 
in  1 890-1 892.  Accordingly  a  blank  was  prepared  by  the 
writer  and  sent  out  by  the  Comptroller,  asking  the 
national  banks  of  the  country  to  give  their  deposits  in 
gold,  silver,  gold  certificates,  silver  certificates,  treasury 
notes,  checks  and  other  instruments  of  credit,  made  on 
May  15,  1894,  by  retail  grocers,  butchers,  clothiers, 
furniture  dealers,  and  fuel  dealers.  Replies  were  received 
from  2,465  national  banks  out  of  a  total  of  3,774.  The 
aggregate  deposits  returned  were  $5,999,065,  of  which 
58.9  per  cent  was  in  checks  and  store  orders,  and  41.1 
per  cent  in  various  kinds  of  money.  These  figures 
indicated  that  the  beUef  that  checks  did  not  enter  largely 

o  Francis  A.  Walker,  Discussions  in  Economics  and  Statistics,  i:  204. 
7071—10 3  27 


National    Monetary     Commission 

into  retail  trade  was  a  mistaken  one.  The  returns, 
however,  were  on  the  whole  meager,  and  two  years  later 
the  writer  again  urged  the  Comptroller  of  the  Currency 
to  institute  a  similar  inquiry  on  a  much  larger  scale.  The 
Comptroller  kindly  consented,  and  the  result  was  the 
inquiry  of  1896. 

The  inquiry  of  i8g6. — The  inquiry  of  1896  was  planned 
along  the  lines  of  that  of  1894  for  the  purpose  of  determin- 
ing if  possible  the  proportion  of  credit  paper  received  in 
what  is  commonly  called  "legitimate  trade"  as  distin- 
guished from  speculative  transactions.  It  was  desired, 
moreover,  to  test  the  statement  so  commonly  made  that 
the  large  proportion  of  credit  documents  shown  in  the 
bank  returns  was  practically  due  to  wholesale  trade  and 
speculation.  Accordingly  a  blank  was  prepared  by  the 
writer  and  submitted  to  the  Comptroller  of  the  Currency 
and  afterwards  sent  out  by  him  to  all  banking  institutions 
in  the  country,  calling  for  the  deposits  made  by  retail 
dealers,  wholesale  dealers,  and  all  other  depositors,  in  gold, 
silver,  currency,  and  checks.  Certain  supplementary 
questions  were  added  in  order  to  get,  as  it  were,  a  side  light 
on  the  returns.     These  questions  were  as  follows : 

1 .  Does  the  above  statement  show  the  usual  proportion 
of  checks,  drafts,  etc.,  to  total  deposits?  If  not,  please  in- 
dicate how  much  it  differs  therefrom. 

2.  Is  it  customary  in  your  community  to  pay  wages  by 
check? 

3.  Are  wages  as  a  rule  paid  weekly  or  monthly  in  your 
community  ? 

The  circular  also  called  for  the  total  number  of  deposi- 
tors and  amount  of  individual  deposits,  and  the  cash  on 

28 


The     Use    of    Credit    Instruments 

hand  classified  in  the  usual  way.  The  request,  like  that  of 
1894,  was  for  deposits,  not  receipts.  The  date  selected 
was  the  settlement  day  nearest  the  ist  of  July.  Of  nearly 
13,000  banking  institutions  of  all  classes  then  in  existence, 
5,700  sent  replies,  of  which  5,530  were  in  such  shape  as  to 
be  useful  for  the  purposes  of  the  inquiry.  Of  these,  3,474 
were  from  national  banks  and  the  remainder  from  state, 
private  and  savings  banks,  and  loan  and  trust  companies. 
The  number  of  replies  from  private  and  savings  banks  and 
loan  and  trust  companies  was  comparatively  small,  so  that 
in  writing  up  the  report  they  were  included  with  the  state 
banks.  The  returns  were  analyzed  by  the  writer  of  this 
report  and  presented  in  numerous  tables  in  the  report  of 
the  Comptroller  for  1896.  It  is  unnecessary  here  to  go 
into  great  detail  in  reviewing  the  report.  Suffice  it  to  say 
that  the  grand  total  deposits  of  the  5,530  banks  was 
$302,936,232.  Of  this  amount  0.6  per  cent  was  in  gold, 
0.5  per  cent  in  silver,  6.3  per  cent  in  currency,  and  92.5 
per  cent  in  credit  paper. 

Of  the  retail  deposits  the  aggregate  was  $26,536,930, 
and  of  this  amount  2.4  per  cent  was  in  gold,  3.2  per  cent 
in  silver,  26.7  per  cent  in  currency,  and  67.4  per  cent  in 
checks .  Of  the  aggregate  retail  deposits  about  $15 ,000,000 
were  in  the  six  States  of  Illinois,  Massachusetts,  Missouri, 
New  York,  Ohio,  and  Pennsylvania,  leaving  between 
$11,000,000  and  $12,000,000  for  the  rest  of  the  country. 
The  smallest  percentage  of  checks  in  retail  deposits  was 
shown  by  Indian  Territory,  with  52.7  per  cent;  New  Hamp- 
shire was  next,  with  53.2  per  cent,  while  the  largest  per- 
centage of  checks  was  in  Kentucky,  which  had  77.4  per 
cent. 

29 


National    Monetary     Commission 

The  bank  returns  were  supplemented  with  data  secured 
directly  from  merchants  in  several  places  and  also  with  cer- 
tain calculations  as  to  the  probable  practice  and  expenditures 
of  various  classes  of  people.  After  all  allowances,  includ- 
ing the  omission  of  $100,000,000  from  the  deposits  of  "all 
others  "  to  allow  for  speculative  transactions,  the  conclusion 
was  reached  that  80  per  cent  was  a  fair  estimate  of  the  total 
proportion  of  the  deposits  of  the  day  made  in  credit  paper. 

CRITICISM  OF  THESE  AMERICAN  INQUIRIES. 

The  first  obvious  criticism  to  be  made  upon  the  earlier 
inquiries  in  this  country  is  that  they  called  for  the  total 
receipts  of  the  banks  on  a  given  day.  Receipts,  of  course, 
are  different  from  deposits,"  for  they  include  checks  pre- 
sented for  collection  and  not  credited  until  the  collection 
is  made.  The  percentage  of  credit  transactions  is  calcu- 
lated too  commonly,  moreover,  on  the  basis  of  the  inclu- 
sion of  clearing-house  certificates. 

Still,  again,  the  returns  in  the  earlier  inquiries  in  this 
country  were  criticised  because  they  were  received  from 
a  limited  number  of  banks.  National  banks  only  were 
used,  but  at  the  times  when  the  investigations  were  made 
these  banks  formed  a  larger  proportion  of  the  total  number 
of  banks  in  the  country  than  they  do  now. 

The  report  of  the  inquiry  of  1894  is  to  be  criticised  for 
not  giving  aggregate  of  deposits  as  well  as  percentages,  and 
for  the  omission  of  the  percentages  of  deposit  by  the  vari- 
ous classes  of  dealers.  The  present  writer,  who  made  that 
report,  did  not  realize  at  the  time  how  helpful  the  per- 
centages would  have  been  if  classified  by  trades. 

oThe  word  "  deposits  "  was  used  in  the  inquiries  of  1894,  1896,  and  1909. 

30 


The     Use    of    Credit    Instruments 

A  criticism  which  has  been  made  on  the  inquiry  of  1 896 
is  that  the  returns  were  obtained  for  a  settlement  day. 
Deposits  on  such  a  day  would,  it  is  urged,  show  a  larger 
proportion  of  credit  paper  than  on  other  days.  This 
criticism  will  be  discussed  later  on  in  connection  with  the 
present  investigation,  as  will  also  the  further  question 
whether  bank  deposits  of  merchants  may  be  taken  fairly 
to  represent  the  method  of  payment  of  their  customers. 

THE  PRESENT  INQUIRY. 

The  qn£stions. — The  present  inquiry  is  undertaken  by  the 
National  Monetary  Commission  in  connection  with  its 
attempt  to  secure  all  possible  information  as  a  basis  for 
its  report  to  Congress.  After  careful  consideration  and 
consultation  with  a  number  of  bankers  and  students  of 
finance,  and  representatives  of  the  Commission,  as  well  as 
the  Comptroller  of  the  Currency,  it  was  decided  to  adhere 
to  the  general  form  of  the  inquiry  of  1896.  It  was  desired 
to  seciu-e  for  purposes  of  comparison  the  deposits  classi- 
fied as  at  the  earlier  date,  and  certain  additional  informa- 
tion was  asked  for  in  order  to  throw  some  side  light  on  the 
inquiry.  Following  is  the  circular  letter  and  blank  form 
which  was  sent  out  by  the  Comptroller : 

Treasury  Department, 

Washington,  March  i,  1909. 
To  the  Cashier: 

Sir:  The  National  Monetary  Commission,  created  by 
an  act  of  Congress  on  May  30,  1908,  is  seeking  information 
concerning  the  bank  deposits  and  the  proportion  of  pay- 
ments made  on  an  average  throughout  the  country  from 


31 


National    Monetary     Commission 

day  to  day  by  means  of  checks  and  similar  instruments 
of  credit.  On  several  occasions  in  the  past  the  Comp- 
troller has  made  requests  of  this  kind,  but  the  last  such 
inquiry  was  made  thirteen  years  ago.  It  is  desired  on 
this  occasion  to  obtain  returns  as  complete  and  repre- 
sentative as  possible  and  to  get  a  response  not  only  from 
the  national  banks  but  from  state  and  private  banking 
institutions  of  all  kinds.  Similar  inquiries  are  being  made 
for  the  Monetary  Commission  during  the  current  year  in 
England,  France,  Germany,  and  other  European  countries 
for  purposes  of  comparison  with  the  practice  in  our  own 
country.  For  this  reason,  and  on  account  of  the  impor- 
tance of  the  present  investigation  and  of  the  purpose  for 
which  it  is  to  be  used,  it  is  earnestly  requested  that  the 
recipients  of  the  accompanying  blank  will  give  it  their 
best  attention  and  return  it  promptly  to  the  Comptroller 
in  the  inclosed  envelope  which  does  not  require  postage. 

Information  is  desired  as  to  the  number  and  classifica- 
tion of  depositors,  methods  of  paying  wages,  etc.,  as 
indicated  in  the  questions  relating  thereto.  The  statistics 
asked  for  will  be  published  only  in  a  general  summary, 
the  figures  for  the  individual  banks  being  treated  as 
confidential. 

Trusting   that   your   institution   will   give   me   all   the 
information  asked  for  and  that  you  will  find  it  possible 
to  transmit  your  report  promptly  after  March  i6,  I  am, 
Yours,  very  respectfully, 

Lawrence  O.  Murray, 

Comptroller  of  the  Currency. 


32 


The     Use    of    Credit    Instruments 


[Please  fill  out  this  blank  after  the  close  of  business  March  i6,  1909.] 

March  i6,  1909. 
Lawrence  O.  Murray, 

Comptroller  of  the  Currency,  Washington,  D.  C. 

Sir:  I  submit  herewith  the  information  requested  in 

your  letter  of  March  i : 

I.  Deposits  made  in  this  bank  on  March  16,  1909: 

[Cents  omitted.] 


Deposits  to  credit  of— 

Gold  coin. 

Silver 
coin. 

Paper 
currency. 

Checks, 

drafts, 

etc. 

Total. 

$ 

$ 

$ 

$ 

$ 

Total 

— 

— 

















1 

i 

4- 


Estimated  amount  of  pay  rolls  paid  by  the  customers  of  this 
bank  in  cash  for  the  week  ending  March  13,  1909 

Estimated  amount  of  pay  rolls  paid  by  the  customers  of  this 
bank  by  check  for  the  week  ending  March  13,  1909 

Aggregate  amount  of  individual  deposits  at  close  of  busi- 
ness on  March  16,  1909 

Aggregate  amount  of  other  deposits,  including  the  balances 
of  other  banks  and  the  deposits  of  city,  State,  or  national 
governments  on  March  16,  1909 


6.  Total  number  of  accounts,  exclusive  of  bank  and  govern- 
ment accounts,  on  March  16,  viz:                                                   Number. 
Accounts  with  balances  under  $500 

Accounts  with  balances  between  $500  and  $2 , 500 

Accounts  with  balances  over  $2,500 

To  indicate  the  character  of  your  bank,  please  put  check-mark  (v/)  oppo- 
site the  proper  name  in  list  below : 

National  bank.  Stock  savings  bank. 

State  bank.  Private  bank. 

Mutual  savings  bank.  Loan  and  trust  company. 

Respectfully, 

Cashier. 

City. 

State. 

33 


National    Monetary     Commission 

The  deposits  made  on  March  i6  were  called  for.  This 
date  came  on  Tuesday,  so  that  the  returns  of  the  present 
inquiry  are  not  those  of  a  settlement  day,  and  conse- 
quently are  free  from  the  objection  made  in  connection 
with  the  previous  inquiry,  that  bank  deposits  on  settle- 
ment days  usually  show  a  larger  proportion  of  checks 
than  on  other  days.  This  objection  had  been  anticipated 
in  the  report  made  to  the  Comptroller  in  1896,  and  an 
effort  was  made  at  that  time  to  determine  whether  there 
was  any  important  variation  in  the  deposits  of  the  bank 
from  day  to  day  throughout  a  month  or  two.  As  shown 
in  that  report,  the  writer  got  information  from  several 
banks  showing  the  proportion  of  credit  paper  in  their 
deposits  daily  for  from  thirty  to  sixty  or  ninety  days. 
As  a  result  of  this  inquiry  he  formed  the  opinion  that 
there  was  no  important  difference  in  the  proportion 
of  credit  paper  on  settlement  days  and  other  days.  The 
reason  may  be  that  there  is  no  such  thing  as  a  general 
settlement  day  the  country  over.  At  any  rate,  the  present 
returns  for  a  nonsettlement  day  show  a  higher  propor- 
tion of  credit  paper  in  the  retail  class  of  deposits  than 
was  shown  by  the  deposits  for  a  settlement  day  in  1896. 
The  time  of  year  chosen  was  simply  a  matter  of  conven- 
ience for  those  making  the  inquiry.  As  shown  by  the 
circular,  certain  supplementary  questions  were  added,  as 
had  been  done  in  1896.  The  first  of  these  was  a  request 
for  the  estimated  amount  of  pay  rolls  paid  by  the  cus- 
tomers of  the  bank  in  cash  for  the  week  ending  March 
13,  and  also  the  amount  paid  by  check.  The  blank  also 
called  for  the  aggregate  amount  of  individual  deposits 


34 


The     Use    of    Credit    Instruments 

at  the  close  of  business,  and  the  aggregate  amount  of 
other  deposits,  including  the  balances  of  other  banks  and 
the  deposits  of  city,  State,  or  National  Government,  if  any. 

Finally,  a  request  was  made  for  a  statement  of  the 
number  of  accounts  with  balances  under  $500,  the  number 
with  balances  between  $500  and  $2,500,  and  the  number 
with  balances  over  $2,500.  The  blank  was  sent  out  by 
the  Comptroller  to  all  the  banking  institutions  of  the 
country  known  to  him.  The  replies  were  sent,  of  course, 
to  the  Comptroller  and  forwarded  by  him  to  the  writer 
for  classification,  analysis,  and  report. 

It  may  not  be  out  of  place  to  say  a  word  about  the 
amount  of  labor  involved  in  putting  the  material  into 
shape  for  use.  The  blanks  were  received  by  the  writer 
early  in  May.  They  were  arranged  by  States  and 
classes  of  banks,  and  the  replies  from  each  State  num- 
bered serially.  The  returns  were  then  tabulated  on 
large  ruled  sheets,  each  bank  being  given  a  separate  entry 
for  the  replies  for  each  question.  The  figures  were  ar- 
ranged in  columns  to  correspond  to  the  columns  of  the 
circular  of  inquiry;  but  three  columns  were  used  for  the 
specie — one  for  gold,  one  for  silver,  and  one  for  the  total 
specie.  The  last  column  on  the  sheet  was  the  sum  of 
the  specie,  currency,  and  checks  from  each  bank.  The 
columns  were  then  added  independently,  and  in  every 
case  of  course  the  column  of  totals  had  to  equal  the 
sum  of  the  footings  of  the  specie,  currency,  and  checks. 
Where  a  discrepancy  was  found,  the  error  was  run  down, 
until  it  is  believed  that  the  figures,  as  finally  presented, 
are  very  free  from  mistakes. 


35 


National    Monetary     Commission 

From  these  primary  tables  supplementary  tables  were 
made,  as  shown  by  the  report,  presenting  the  data  in 
various  ways  from  various  points  of  view.  The  other 
data  called  for  in  the  circular  were  also  tabulated,  but 
it  is  not  necessary  to  go  into  the  details  of  the  method  of 
manipulation. 

The  percentages  are  made  out  to  one  decimal  place. 
They  were  found  mostly  by  the  slide  rule  and  Crelle's 
Rechentafeln,  but  a  few  were  found  by  actual  division. 
Where  the  figure  is  less  than  o.i  per  cent,  it  is  omitted. 
For  this  reason  a  figure  sometimes  occurs  for  the  per 
cent  of  total  specie  when  none  is  given  for  gold  and  silver 
separately. 

Before  taking  up  a  discussion  of  the  present  returns,  it 
is  interesting  and  worth  while  to  make  some  preliminary 
remarks  concerning  the  general  character  of  the  statistics, 
the  attitude  of  the  banks  toward  the  inquiry,  and  the 
character  and  form  of  the  replies. 

In  the  first  place,  all  questionnaires  and  inquiries  by 
means  of  circulars  are  under  suspicion  among  some 
people.  It  is  the  opinion  of  some  that  it  is  impossible 
to  frame  a  questionnaire  which  will  elicit  the  points  that 
are  of  importance  to  the  inquiry.  Of  course  it  is  true, 
as  those  familiar  with  statistical  investigations  need  not 
be  told,  that  it  is  quite  impossible  to  prepare  a  form  so 
phrased  as  to  preclude  the  likelihood  of  misinterpreta- 
tion or  to  secure  information  so  accurate  as  to  cover 
all  possible  variations  in  the  conditions  that  it  seeks 
to  investigate.  It  almost  seems  as  if  common  words 
were  turned  into  stumbling  blocks  by  the  mere  fact  of 


36 


The     Use    of    Credit    Instruments 

being  used  in  a  formal  way.  It  is  exceedingly  difficult 
to  get  a  uniform  interpretation  of  even  simple  questions 
and  terms.  The  present  investigation  is  no  exception 
to  these  experiences. 

For  example,  in  the  inquiry  of  1896  the  question  was 
asked:  "Is  it  customary  in  your  community  to  pay  wages 
by  checks  ? "  Objection  has  been  made  to  the  phraseology 
of  this  question  by  one  keen  critic,  Prof,  E.  W.  Kemmerer." 
He  thinks  that  the  information  obtained  at  that  time  as  to 
the  proportion  of  wages  paid  by  check  was  inadequate  be- 
cause the  word  "  customary  "  might  be  interpreted  to  mean 
either  "  a  custom  "  or  "  the  custom  "  and  that  small  States 
were  given  as  much  importance  as  large  ones  in  the  table. 

It  is  always  possible,  of  course,  for  students  to  take  a 
sentence  and  find  various  meanings  for  a  word.  It  is  very 
doubtful,  however,  whether  one  man  in  a  thousand  in  the 
community  would  misunderstand  the  use  of  the  word 
customary  in  this  question.  The  business  man,  when 
asked  such  a  question,  does  not  stop  to  analyze  the  possi- 
bility of  various  interpretations.  If  asked  what  is  the 
custom  in  your  community  with  reference  to  a  certain 
matter,  he  will  give  an  answer  which  conveys  his  impres- 
sion of  what  is  the  general  practice.  He  will  not  stop  to 
say  that  Jones  always  does  this,  but  Smith  never  does. 
The  idea  that  he  will  convey  in  his  answer  is  that  if  the 
majority  or  a  considerable  proportion  of  the  people  do  this 
way,  then  this  is- the  custom  of  the  community.  A  ques- 
tion to  be  sent  out  for  purposes  of  this  kind  must  be  framed 
in  ordinary  language  and  from  the  point  of  view  of  the 

o  Money  and  Prices,  Cornell  Studies,  1907,  p.  106. 
37 

7 1  fi  rt  r, 


National    Monetary     Commission 

people  who  read  it  and  not  from  the  point  of  view  of  possi- 
ble critical  analysis  by  professors  and  other  students. 

Still  it  seemed  better  to  change  the  phrasing  of  the  ques- 
tions with  reference  to  wage  payment.  It  can  hardly  be 
said,  however,  that  the  present  information  on  this  topic 
points  to  a  more  definite  conclusion. 

General  discussion  of  the  statistics. — In  reading  over 
statistics  so  voluminous  and  drawn  from  so  many  different 
sources  one  naturally  wonders  whether,  after  all,  the 
figures  are  very  reliable  or  of  great  utility.  It  is  true,  of 
course,  of  statistical  matter  generally  that  it  presents  a 
case  or  a  subject  only  partially  and  with  a  great  many 
imperfections  and  defects.  Nevertheless,  if  the  figures 
are  carefully  collected  and  properly  grouped  and  inter- 
preted, there  is  no  doubt  that  such  collections  of  figures  as 
we  are  about  to  discuss  present  a  picture  of  the  general 
conditions  of  activity  which  they  are  designed  to  represent 
and  from  which  they  are  drawn.  It  is  important  that  we 
be  certain  of  their  general  accuracy,  the  honesty  with 
which  they  are  given,  and  the  honesty  with  which  they  are 
grouped  and  manipulated.  Assuming  these  conditions, 
we  may  rely  on  the  conclusions  as  presenting  the  general 
features  at  least  of  the  situation. 

It  is  often  assumed  by  critics  of  such  investigations  that 
the  statistics  can  not  be  relied  on  because  the  banks  are  not 
interested  in  such  inquiries  and  are  careless  about  making 
returns.  The  writer,  having  examined  all  the  returns  in 
the  present  inquiry,  as  well  as  in  that  of  thirteen  years  ago, 
and  having  read  the  numerous  letters  which  correspond- 
ents have  sent,  without  being  requested  to  do  so,  in  con- 
nection with  their  returns,  is  convinced  that  there  is  not 

38 


The     Use     of    Credit    Instruments 

only  a  widespread  interest  in  the  inquiry,  but  that  the  cor- 
respondents have  been  careful  as  a  rule  to  give  the  figures 
as  accurately  as  they  could,  according  to  their  understand- 
ing of  the  question.  In  the  present  inquiry,  the  interest  of 
the  correspondents  has  been  evinced  in  many  ways.  In 
one  of  the  larger  cities  of  the  country,  for  example,  repre- 
sentatives of  the  banks  associated  in  the  clearing  house,  on 
receiving  these  blanks,  were  sufficiently  interested  to  get 
together  and  discuss  the  purpose  and  meaning  of  the  ques- 
tions and  decide  upon  a  plan  whereby  the  replies  from  that 
city  would  be  based  upon  a  uniform  interpretation.  Sev- 
eral letters  written  by  individual  bank  officers  express  their 
interest,  indicating  that  although  the  compilation  of  the 
returns  required  a  good  deal  of  time  and  therefore  sub- 
jected the  bank  to  considerable  expense,  they  were  glad  to 
comply  with  the  request.  Indeed,  the  general  interest  of 
all  classes  of  banks  is  shown  by  the  large  number  of  replies. 
The  interest  extended  not  only  to  national  bank  officers 
but  to  the  officers  of  other  classes  of  banks.  The  officers 
of  some  banks  who  by  mischance  failed  to  receive  blanks, 
nevertheless  having  seen  notices  of  the  inquiry  and  the 
form  of  the  blank  in  the  newspapers,  sent  in  the  informa- 
tion wanted.  The  examining  officers  of  the  state  banks  in 
the  various  States,  such  as  the  state  auditors,  also  evinced 
great  interest  and  were  very  helpful  in  the  inquir}^  by 
urging  upon  the  banks  under  their  jurisdiction  a  full  and 
prompt  compliance  with  the  Comptroller's  request.  For 
all  of  this  willing  response  the  commission,  the  writer,  and 
the  public  in  general  certainly  owe  a  debt  of  gratitude  to 
those  who  went  to  so  much  trouble. 


39 


National    Monetary     Commission 

Tlie  day  selected. — In  the  inquiry  of  1896  the  day 
selected  for  securing  information  was  the  settlement 
day  nearest  the  first  Monday  of  July.  It  has  been 
objected  by  critics  of  the  report  of  1896  that  a  settle- 
ment day  is  not  representative  of  the  ordinary  day-to-day 
deposits  of  the  business  men  of  the  country,  particu- 
larly of  the  retail  tradesmen.  Supplementary  inquiries 
made  in  1896  seemed  to  show  that  there  really  was  little 
or  no  difference  in  the  proportion  of  checks  and  other 
credit  documents  deposited  from  day  to  day  through- 
out a  month  or  two  and  the  percentage  determined 
by  the  returns  of  the  banks  on  the  day  chosen.  The 
writer  is  convinced  that  this  is  true,  not  only  from  hav- 
ing gone  through  the  books  of  several  banks  at  the  time 
of  the  inquiry  of  1896,  but  as  a  result  of  considerable 
inquiry  here  and  there  among  bankers.  The  returns  of 
the  present  inquiry  confirm  this  opinion.  The  day 
selected  is  not  a  settlement  day,  yet  the  proportion  of 
credit  documents  in  retail  trade  runs  even  higher  than 
it  did  in  1896  or  in  1894. 

Of  course  the  habits  of  the  people  in  the  matter  of 
paying  by  check  may  have  changed  somewhat  in  that 
time;  but  even  if  so,  it  is  doubtful  whether  it  can  have 
changed  so  greatly. 

Moreover  we  must  remember  that  a  good  many 
monthly  accounts  are  probably  settled  with  money 
instead  of  checks.  If  a  person  is  in  the  habit  of  paying 
by  check,  he  would  very  likely  pay  a  month's  account 
or  a  day's  purchase  of  any   importance  with  a  check. 


40 


The     Use    of    Credit    Instruments 

If  he  is  in  the  habit  of  paying  money,  he  will  pay  both 
accounts  with  money. 

As  indicated  in  what  has  just  been  said,  other  critics 
have  urged  that  one  day,  whether  a  settlement  day  or 
a  nonsettlement  day,  is  not  enough  to  give  a  fair  idea 
of  the  character  of  the  receipts  of  business  men,  to  say 
nothing  of  the  habits  of  the  people  of  the  country  in 
settling  accounts.  No  reason  has  ever  been  given  for 
this  opinion,  excepting  that  one  day  is  one  day  out  of 
three  hundred  and  sixty-five  in  the  year.  It  should  be 
noted,  however,  that  the  various  inquiries  have  been 
made  on  different  dates,  and  the  results  have  been  sub- 
stantially the  same.  It  should  be  noted  further,  as 
remarked  in  the  preceding  paragraph,  that  so  far  as  a 
direct  inquiry  has  been  made  upon  this  point  the  tes- 
timony of  bankers  and  the  evidence  from  their  books 
is  that  one  day  is  typical.  There  are  many  banks  in 
the  country  of  which  this  is  not  true. 

If  the  settlement  day  selected  in  1896  were  not  typical, 
because  it  would  show  an  undue  proportion  of  checks 
in  the  deposits,  a  nonsettlement  day  ought  to  show  an 
undue  proportion  of  cash.  The  opposite  is  the  fact. 
If  one  day  which  was  a  settlement  day  was  not  typical, 
one  day  which  is  a  nonsettlement  day  ought  to  be  as 
nontypical  in  the  opposite  direction.  The  contrary  is  the 
fact  brought  out  by  the  figures  in  the  present  inquiry. 

In  discussing  the  returns  of  settlement  days,  more- 
over, we  must  not  forget  that  a  settlement  day  is  not 
the  same  for  all  classes  of  business,  nor  for  all  classes 
of  purchasers,  nor  for  all  parts  of  the  country.     Many 


41 


National    Monetary     Commission 

retail  business  men  consider  a  customer  sufficiently 
prompt  if  he  settles  a  month's  account  within  ten  days 
after  receiving  his  bill,  while  others  expect  payment 
the  next  day.  Not  a  few  accounts  are  settled  semi- 
monthly, instead  of  monthly,  and  still  others  are  set- 
tled quarterl3^  There  is  ground  for  thinking  that  the 
distribution  of  settlement  days  is  such  as  to  reduce  ma- 
terially what  would  otherwise  be  a  disproportion  of 
the  amount  of  credit  paper  in  bank  deposits  on  those 
days. 

We  may  fairly  conclude  therefore  that  for  purposes 
of  such  inquiries  almost  any  day  will  do,  because  of 
the  vast  extent  of  our  country,  the  large  number  of 
banking  institutions  that  send  replies,  and  the  multi- 
fariousness of  the  business  involved.  The  habits  of 
our  people  and  the  customs  of  widely  separated  com- 
munities are  likely  to  be  very  different  from  what  they 
would  be  if  our  population  were  condensed  into  a  small 
area,  like  England  or  Belgium. 

General  criticism  of  the  replies. — As  has  been  remarked, 
the  inquiry  was  sent  to  all  the  banking  institutions  in 
the  country  known  to  the  Comptroller.  This  number 
was  about  25,000.  Notwithstanding  the  interest  and 
care  exhibited,  there  were,  of  course,  a  great  many  who 
filled  out  the  blanks  carelessly  and  with  an  apparent 
lack  of  appreciation  of  the  public  importance  of  such 
an  inquiry  and  the  moral  obligation  on  individual  citi- 
zens to  do  what  they  can  to  help  on  the  progress  of 
enlightenment  in  all  matters  of  such  public  interest. 
Perhaps  the  most  surprising  thing  in  the  study  of  the 


42 


The     Use    of    Credit    Instruments 

returns  was  the  necessity  of  checking  up  additions, 
because  of  the  numerous  errors  in  addition  made  in  the 
original  blanks.  This  defect  has  been  noticed  in  ear- 
lier inquiries.  There  was  not  a  very  large  number  of 
such  blanks,  but  the  fact  that  there  were  some  and 
that  there  was  no  certainty  as  to  when  an  error  would 
be  found  made  it  necessary  to  check  up  all.  Of  the 
total  number  of  blanks  sent  out,  12,190  were  returned. 
Of  this  number  698  were  rejected,  leaving  11,492  which 
were  used  in  making  the  report. 

The  reasons  for  the  rejection  of  nearly  700  blanks  were 
numerous.  Some  gave  all  deposits  as  retail  deposits, 
some  gave  them  as  wholesale  only,  some  gave  them  as  the 
deposits  of  "all  others,"  and  some  entered  only  aggregate 
deposits  on  the  day  in  question.  When  a  blank  was  found 
which  had  entries  only  under  retail  deposits  it  was  scruti- 
nized to  determine  whether  the  entry  was  correct  or  whether 
the  total  deposits  of  the  day  had  been  entered  under  the 
head  of  ' '  retail . "  In  many  cases  accompanying  letters  gave 
a  clew  to  the  determination  of  this  question.  Where  there 
was  any  doubt  the  returns  were  calculated  in  the  "all 
others  "  rather  than  in  the  "retail."  The  number  rejected 
on  this  account  was  not  ver}^  large. 

The  same  remarks  apply  to  those  which  returned  all  de- 
posits as  wholesale,  all  others,  or  aggregate.  There  were 
some  cases  in  which  this  was  a  correct  return,  as  accom- 
panying letters  showed. 

Blanks  which  gave  the  aggregate  deposits  of  gold  coin, 
silver  coin,  currency,  and  checks,  without  classifying  them 
according  to  depositors,  were  not  used.     It  may  be  said, 

7071—10 4  43 


National    Monetary     Commission 

however,  that  in  no  case  did  any  one  of  these  present  any 
striking  differences  from  the  general  run  of  the  repHes  in 
regard  to  the  proportion  of  credit  documents  in  the  aggre- 
gate deposits.  A  good  many  of  the  blanks  were  rejected 
because  the  aggregate  deposits  of  the  day  were  all  entered 
under  one  head  instead  of  being  classified.  For  example, 
one  blank  from  West  Virginia  reported  a  receipt  of  nearly 
$250,000  in  gold  coin  from  the  three  classes  of  depositors 
on  the  1 6th  day  of  March.  Farther  on  in  the  blank  the 
aggregate  deposits  at  the  close  of  business  on  the  day  in 
question  are  given  as  a  trifle  over  $200,000.  The  inaccu- 
racy of  such  a  statement  is  too  obvious  to  need  comment. 

In  the  case  of  a  good  many  rejected  blanks  the  persons 
who  made  them  out  evidently  read  them  carelessly,  for 
they  gave  the  same  figure  for  the  deposits  of  the  day  as  is 
given  lower  down  in  the  blank  for  the  aggregate  deposits  of 
the  bank  at  the  close  of  business. 

One  or  two  made  the  strange  and  inexplicable  mistake 
of  giving  not  the  deposits  of  the  day,  but  the  aggregate 
deposits  of  the  bank,  and  yet  returned  them  classified  as 
gold,  silver,  currency,  etc.,  for  different  classes  of  dealers. 

Probably,  however,  the  largest  proportion  of  those  re- 
jected were  thrown  out  because  they  gave  no  information 
at  all  in  answer  to  the  first  question,  but  filled  out  carefully 
the  answers  to  the  other  questions.  These  are  helpful, 
however,  in  discussing  the  later  questions.  Probably  half 
or  more  of  the  rejections  were  due  to  this  cause. 

As  already  stated,  some  banks  returned  all  deposits 
under  "retail,"  and  others  all  under  "  wholesale."  Where 
possible,  these  were  properly  entered.     But  in  so  far  as 


44 


The    Use    of    Credit    Instruments 

deposits  returned  as  retail  were  not  really  so  and  were  not 
detected  as  not  being  so,  the  total  retail  deposits,  of  course ^ 
will  be  too  large.  The  same  is  true  of  the  total  wholesale 
deposits  in  so  far  as  the  same  cause  of  error  was  at  work, 
but  the  error  in  either  case  is  trifling.  It  can  not  amount 
to  more  than  a  few  thousand  dollars  in  the  total  retail  de- 
posits or  in  the  total  wholesale.  The  probability  is  that 
if  there  is  any  error  due  to  bad  classification  by  the  corre- 
spondents, it  tends  to  make  the  deposits  accredited  to  "all 
other"  depositors  large  at  the  expense  of  the  others,  for 
the  reason  that  it  is  easier  to  enter  the  returns  under  "all 
others  "  than  to  classify  them.  The  figures  given  for  retail 
trade,  however,  are  without  doubt  representative  of  retail 
trade  as  that  phrase  is  commonly  understood. 

Twenty  were  received  too  late  for  use,  and  the  seven 
blanks  received  from  Alaska  and  Hawaii  were  not  used 
because  they  were  so  few  that  their  use  would  reveal  the 
business  of  individual  banks.  Moreover,  they  were  hardly 
germane  to  the  purpose  of  the  discussion,  and  they  show- 
no  marked  differences  from  those  received  from  banks  on 
the  continent. 

It  is  worth  while  noting  that  of  the  blanks  rejected  the 
proportion  of  the  national  banks  is  smaller  than  that  of 
any  of  the  others.  Of  the  national  bank  replies  1.7  per 
cent  were  rejected,  of  those  of  the  state  banks  7.4,  of  those 
of  the  private  banks  12.3,  of  those  of  the  stock  savings 
banks  13,  of  those  of  mutual  savings  banks  14.5,  of  those  of 
the  loan  and  trust  companies  7.2,  and  of  the  total  5.5. 

The  national  banks  are  more  accustomed  to  making  out 
forms,  and  probably  they  are  in  a  position  to  answer  such 


45 


National    Monetary     Commission 

questions  more  easily  than  any  of  the  other  classes  of 
banks.  On  the  whole,  there  seemed  to  be  a  large  amount 
of  careless  answering  from  the  state  and  private  banks. 
Obviously,  the  questions  in  some  cases  were  not  carefully 
read.  It  will  be  noticed  that  of  the  385  stock  savings 
banks  from  which  replies  were  received  183  were  in  Iowa, 
and  it  was  the  stock  and  the  mutual  savings  banks  whose 
replies  were  most  commonly  defective. 

Many  of  the  cashiers  of  the  savings  banks  evidently 
thought  that  it  was  not  the  intention  to  have  them  answer 
the  first  question  on  account  of  the  classification  of  deposi- 
tors and  so  omitted  it  altogether.  Nevertheless,  they 
gave  some  valuable  information  in  connection  with  the 
other  questions.  The  following  table  shows  the  total  num- 
ber of  replies  received  and  the  number  rejected  in  consider- 
ing question  i.  The  number  of  banks  giving  replies  is 
afterwards  entered  only  in  the  tables  of  aggregates  because 
not  all  banks  gave  returns  for  all  classes  of  depositors. 
The  States  with  the  largest  percentages  of  rejections  of 
replies  of  "all  banks"  are  Arkansas  and  Rhode  Island, 
each  having  14.2. 


46 


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The    Use    of    Credit    Instruments 


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49 


National    Monetary     Commission 

CLASSES   OF   BANKS   REPORTING. 

In  all  previous  inquiries  on  this  subject,  excepting 
that  of  1896,  no  effort  was  made  to  get  returns  from  banks 
other  than  national.  The  courteous  treatment  accorded 
the  inquiry  of  the  Comptroller  in  1896  showed  clearly 
that  bankers  of  all  classes  would  be  glad  to  give  informa- 
tion. Accordingly,  as  has  been  stated,  the  inquiry  was 
sent  to  all  classes  of  banks  and  the  interest  of  state 
banking  officers  was  enlisted  to  promote  the  cooperation 
of  the  state  and  private  banks  of  the  different  States. 

A  few  words  of  explanation  concerning  the  classifica- 
tion of  banks  is  therefore  desirable.  There  was  no  diffi- 
culty, of  course,  with  the  national  banks.  Every  bank 
with  a  national  charter  knew  how  to  classify  itself. 

In  a  few  cases  banks  thought  they  could  not  be  classified 
under  any  of  headings  in  the  circular,  and  therefore  entered 
themselves  under  the  head  of  "foreign  bank."  There 
were  not  more  than  half  a  dozen  of  these,  and  as  they 
are  probably  operating  under  state  charters  they  were 
classified  as  state  banks.  The  mutual  savings  banks, 
as  that  term  is  understood  in  Massachusetts,  and  the 
trustee  savings  banks,  as  the  phrase  is  used  in  New  York, 
were  classed  together.  Some  bank  officers  in  New  York, 
however,  seemed  to  think  that  the  savings  banks  of  New 
York  could  not  be  properly  classified  under  any  of  the 
headings  of  the  circular.  Whatever  reasons  there  may 
be  for  holding  this  view,  for  the  purposes  of  this  inquiry 
they  should  be  classed  with  those  of  Massachusetts. 
In  some  cases  a  bank  properly  entered  itself  under  more 
than  one  head.     Two  or  three  could  say  that  they  were 

50 


The    Use    of    Credit    Instruments 

state  banks,  stock-savings  banks,  and  loan  and  trust 
companies.  Obviously,  what  was  meant  was  that  they 
were  loan  and  trust  companies  operating  under  a  state 
charter  and  doing  a  savings-bank  business  in  addition 
to  their  commercial  business.  They  were  classified  as 
loan  and  trust  companies. 

It  developed  that  a  great  many  national  banks  are 
carrying  savings  accounts.  These  were  obviously  sepa- 
rated in  the  reports  from  the  commercial  accounts  in 
practically  all  cases.  In  answering  question  4  of  the 
circular,  however,  many  banks  included  the  savings  and 
commercial  accounts  without  distinction. 

Of  course,  the  classification  of  deposits  by  retail  dealers, 
wholesale  dealers,  and  all  others  was  hardly  applicable 
to  the  mutual  savings  banks.  Retiu-ns  from  the  savings 
banks  under  the  head  of  "all  others"  alone  would  have 
been  entirely  satisfactory,  since,  of  course,  people  who 
deposit  in  savings  banks  do  so  as  individuals  and  not  as 
classes  of  business  men.  Nevertheless,  savings  banks 
evidently  endeavored  to  classify  their  deposits  exactly 
as  the  circular  called  for.  While,  for  purposes  of  discus- 
sion by  and  by,  we  shall  find  their  total  deposits  the  thing 
of  most  importance  without  reference  to  the  classification, 
it  is  interesting  to  note  that  a  good  many  tradesmen  are 
using  the  savings  banks. 

It  is  interesting  to  notice,  too,  the  distribution  of  the 
kinds  of  banks  from  which  replies  were  received.  The 
state  banks  figure  less  prominently  in  the  Eastern  States 
than  in  the  Middle  West,  Northwest,  and  Southwest.  In 
the  New  England  States  and  in  New  York,  New  Jersey, 


51 


National    Monetary     Commission 

Pennsylvania,  Delaware,  Maryland,  Ohio,  and  Texas 
the  national  banks  are  much  in  excess  of  the  state  banks, 
in  number.  The  difference  is  much  less  in  Illinois, 
Indiana,  Iowa,  Louisiana,  and  Oklahoma,  while  the 
state  banks  which  replied  largely  outnumbered  the 
national  banks  in  California,  Georgia,  Kansas,  Louisiana, 
Michigan,  Minnesota,  Mississippi,  Missouri,  Nebraska, 
North  Carolina,  North  Dakota,  South  Carolina,  South 
Dakota,  and  Wisconsin. 

Of  the  759  private  banks  from  which  replies  were 
received  675  were  in  ten  States.  Illinois  had  the  largest 
number,  222;  Indiana  came  next  with  106;  and  the  other 
8  in  order  were  Iowa  95,  Ohio  78,  Michigan  57,  Missouri 
30,  New  York  23,  Colorado  23,  Pennsylvania  21,  and 
Texas  20. 

Of  the  385  replies  from  the  stock-savings  banks,  183 
came  from  Iowa  and  113  from  California,  Michigan,  and 
Ohio  together.  The  remaining  89  are  pretty  evenly 
distributed  throughout  the  country. 

Of  the  409  replies  from  mutual  savings  banks,  under 
which  head  cooperative  savings  banks  of  all  kinds  not 
organized  for  profit  of  stockholders  were  included,  135 
came  from  Massachusetts,  95  from  New  York,  54  from 
Connecticut,  37  from  Maine,  and  the  rest  were  scattering. 
It  is  to  be  noted,  however,  that  so  far  as  the  returns  of 
this  inquiry  show,  this  class  of  banks  is  confined  to  the 
New  England  States  and  New  York,  California,  Delaware 
Indiana,  Maryland,  Minnesota,  New  Jersey,  Pennsylvania 
and  West  Virginia. 


52 


The     Use    of    Credit    Instruments 

The  distribution  of  these  through  the  country  at  large 
is  much  more  uneven  than  that  of  the  stock-savings 
banks. 

Loan  and  trust  companies  reported  from  all  the  states 
excepting  Alabama,  Arizona,  Florida,  Louisiana,  Missis- 
sippi, Montana,  Nebraska,  Nevada,  New  Mexico,  North 
Dakota,  Oklahoma,  Oregon,  South  Dakota,  Texas,  Utah, 
Washington,  and  Wyoming.  The  states  from  which  the 
loan  and  trust  companies  are  absent  are  in  the  main 
those  which  may  be  said  to  be  without  great  commercial 
development. 

CI^ASSES    OF    BUSINESS    AND    CUSTOMS    AS    TO    METHODS    OF 

PAYMENT. 

It  seems  pretty  obvious  that  it  would  be  difficult  to 
mention  any  class  of  business,  in  any  kind  of  community, 
even  in  "  retail  trade,"  of  which  it  could  be  said  with  assur- 
ance that  no  part  of  its  receipts  were  in  the  form  of  credit 
documents.  Given  a  community  in  which  the  habit  of 
paying  by  checks  is  well  developed,  the  question  whether 
a  given  purchase  will  be  paid  for  in  that  way  depends  prin- 
cipally on  two  things,  its  amount  and  time  of  payment. 
If  the  sale  is  a  "  cash  sale  "  it  is  likely  to  be  paid  for  with  a 
check  according  as  its  value  is  $i,  $5,  or  more.  By  some 
people  the  dollar  purchase  would  be  paid  for  by  check 
The  instances  are  not  few  in  which  checks  are  drawn  for 
sums  smaller  than  $1.  If,  on  the  other  hand,  the  sale  is  a 
"charged  sale"  to  be  settled  at  the  beginning  of  the  fol- 
lowing month  or  at  the  end  of  some  designated  credit 
period,  it  will  very  likely  be  paid  for  with  a  check,  if  the 


53 


National    Monetary     Commission 

purchaser  is  in  the  habit  of  paying  with  checks ;  otherwise 
it  will  be  paid  with  money;  for  it  seems  to  have  been 
forgotten  in  all  statements  about  the  disproportion  of 
credit  paper  in  the  deposits  of  so-called  settlement  days 
that  even  a  month's  account  will  be  paid  with  money  by 
people  who  are  not  in  the  habit  of  using  checks.  It  is 
probably  true,  however,  that  the  larger  proportion  of 
charged  sales  are  made  by  people  who  are  in  the  habit 
of  paying  with. checks. 

If,  now,  we  consider  the  character  of  various  kinds  of 
retail  business.it  will  be  evident  that  we  might  guess  before- 
hand that  in  certain  kinds  of  business  the  proportion  cf 
credit  paper  received  in  payment  would  be  pretty  large, 
while  in  others  it  would  be  pretty  small  or  entirely  disap- 
pear. No  evidence  exists  to  show  that  it  disappears 
altogether  in  any  kind  of  business,  although  it  undoubtedly 
does  vanish  in  the  case  of  a  great  many  individual  stores 
in  every  business.  A  short  discussion  of  some  of  these 
points  will  help  us. 

The  grocer's  sales  to  the  people  who  enter  his  store  from 
day  to  day  are  both  cash  sales  and  charged.  A  cash  sale 
of  such  a  character  that  the  purchaser  will  likely  take  the 
goods  with  him  will  almost  always  be  paid  for  with  money, 
even  in  communities  where  most  of  the  customers  are  per- 
sonally known.  If  it  is  a  sale,  for  example,  to  a  family 
whose  income  is  $15  or  $20  a  week  and  it  is  charged,  it  will 
very  likely  be  paid  for  with  money,  provided  the  family  is  of 
the  wage-earning  class.  It  is  just  as  likely  to  be  paid  with 
a  check  as  with  money  if  the  purchaser  belongs  to  the 
professional  or  semiprofessional  class.     A  bookkeeper  or 


54 


The     Use    of    Credit    Instruments 

clerk  whose  total  yearly  income  is  $i,ooo  is  not  unlikely 
to  be  a  check  user,  whereas  a  carpenter  or  bricklayer  with 
the  same  annual  wages  will  not  be. 

Now,  single  purchases  made  in  the  average-sized 
grocery  in  a  country  town  are  moderate  in  value,  and  yet 
of  sufficient  value  to  justify  payment  by  checks  in  a  large 
number  of  cases  by  people  who  are  in  the  habit  of  paying 
in  that  way.  The  individual  purchases  at  any  one  time 
in  a  confectionery  store  or  the  ordinary  drug  store,  on  the 
other  hand,  assuming  again  that  the  customer  is  known,  are 
usually  so  small  that  if  they  are  cash  sales  they  will  very 
likely  be  paid  for  in  money.  One  does  not  draw  a  check 
to  pay  for  a  dish  of  ice  cream  or  a  dime's  worth  of  candy, 
or  a  bottle  of  medicine  filled  on  a  physician's  prescription. 
The  small  sales  when  charged,  however,  make  an  aggregate 
which  makes  the  use  of  the  check  evident.  If,  however, 
the  purchase  is  one  that  aggregates  $i,  $5,  or  more,  even 
though  a  cash  sale,  it  may  be  paid  by  check. 

If  we  consider  the  business  of  the  furniture  dealer,  we 
see  that  the  average  purchase  here  is  considerable,  so  that 
we  would  expect  a  larger  proportion  of  checks  in  his  pay- 
ments than  in  the  case  of  the  druggist,  for  example.  It  is 
evident  that  if  the  total  receipts  of  the  business  in  a  com- 
munity such  as  we  have  in  mind  are  made  up  mostly  from 
a  large  number  of  sales,  each  small  in  volume,  we  are 
likely  to  find  a  larger  proportion  of  money.  But  "  small  in 
volume  "  is  a  relative  term.  What  would  be  a  small  single 
sale  here  would  be  a  large  one,  for  example,  in  many  a 
small  shop  in  Berlin.  What  is  in  the  writer's  mind  in 
using  the  phrase  "small  sale"  may  be  described,  perhaps. 


55 


National    Monetary     Commission 

as  a  sale  less  than  $5.  Consequently  we  would  expect  a 
large  proportion  of  checks  also  in  the  receipts,  for  example, 
of  custom  tailors,  jewelers,  coal  dealers,  and  lumber  deal- 
ers. The  average  purchase  in  the  field  of  each  class  of 
these  is  considerable.  The  confectioner,  the  barber,  the 
notion  store,  on  the  other  hand,  each  has  a  small  average 
single  sale.  Here  we  would  expect  the  volume  of  checks 
received  in  payment  to  run  down. 

Circumstances  alter  considerably  if  we  take  the  case  of  a 
large  city  like  New  York  or  Chicago,  where  customers  are 
nearly  all  personally  unknown  to  the  sellers  of  the  goods. 
A  stranger  would  not  think  of  going  into  Wanamaker's  in 
Philadelphia,  or  R.  H.  White's  in  Boston,  or  Marshall 
Field's  or  "The  Fair"  in  Chicago,  and  offering  to  pay  a 
$5  purchase  with  a  check.  Of  coiu^se,  this  is  done.  It 
is  not,  howcA^er,  done  without  trouble.  The  percentage 
of  checks  in  the  receipts  of  certain  stores  in  the  Loop  dis- 
trict of  Chicago,  to  be  given  later  on,  may  therefore  be 
taken  as  a  fair  average  of  the  proportion  of  payments 
made  with  checks  by  the  middle  class  of  people,  in  so  far 
as  they  purchase  at  places  where  they  are  not  personally 
known.  Many  of  them  will  pay  bills  at  other  places,  how- 
ever, with  checks.  Consequently  the  average  given  for 
these  stores  can  not  be  taken  as  the  true  average  of  the 
proportion  of  payments  made  with  checks  even  by  this 
class  of  people.  It  is  too  low.  We  must  remember,  too, 
that  although  the  purchasers  in  these  stores  represent  the 
great  group  of  the  middle-class  purchasers,  the  total  vol- 
ume of  their  purchases  may  be  less  than  that  of  a  smaller 
class  above  them    and  that  the  average  percentage  of 


56 


The     Use    of    Credit    Instruments 

check  payments  for  the  whole  country  is  raised  by  the 
latter. 

If  one  would  find  the  store  in  which  the  proportion  of 
cash  reaches  its  maximum,  he  should  seek  a  store  each  of 
whose  single  purchases  is  of  small  value,  like  cigars  or 
candy  or  "knick  knacks;"  whose  clientele  is  exclusivel}^ 
of  the  class  of  day  laborers  and  people  unknown  personally 
to  the  dealer.  One  would  find  such  a  store  on  lower 
State  street  in  Chicago,  or  on  Milwaukee  avenue,  or  on  the 
east  side  in  New  York.  Even  here,  however,  the  chance 
customer  of  means,  whom  the  dealer  is  glad  to  welcome 
once  in  a  while,  will  come  in  and  give  his  check  for  a  box 
of  cigars,  or  enough  Christmas  toys  to  make  a  group  of 
children  in  a  neighborhood  house  happy  at  some  season 
of  the  year,  or  for  some  purchase  arising  from  unusual  cir- 
cumstances of  that  kind.  In  fact,  the  retail  trade  of  the 
country  shows  that  the  habit  of  paying  by  check  has  prob- 
ably reached  down  in  some  measure  to  all  economic  classes 
of  the  community  whose  income  is  $i,ooo  or  more,  pro- 
vided they  are  other  than  what  are  classified  as  manual 
laborers. 

THE    RETAIL    RETURNS. 

The  following  table  shows  the  retail  returns  of  the 
present  inquiry : 


57 


National    Monetary     Commission 


8     S 


Qi 


N 

00 

lO 

<^ 

VO 

VO 

■V 

o 

m 

to 

t^ 

t~ 

to 

00 

Ov 

VD 

" 

to 

ov 

VO 

" 

Ov 

^ 

^ 

i^ 

■* 

o 

M 

H 

m 

VO 

■<»• 

m 

0 

m 

1 

M 

M 

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00 

m 

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t^ 

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m 

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01 

Si 

a, 

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m 

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m 

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m 

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00 

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w 

1^ 

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t^ 

00 

0 

vO 

to 

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0 

" 

ir, 

r^ 

\n 

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t^ 

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11 

to 

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n 

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0 

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to 

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m 

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a 
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to 

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to 

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58 


The    Use    of    Credit    Instruments 


■^  o  \o  vO 


^  ^O   ^  ^  OS  Ov 


1-*  r»  ^  M 


\0  r"r--r*vOvOvO   r^-oO'O   ^* 


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7071 — 10- 


59 


National    M  o  n  e  t  ar  y     Commission 


•5S 

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The     Use    of    Credit    Instruments 


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66 


The    Use    of    Credit    Instruments 


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National    Monetary     Commission 


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6S 


The     Use    of    Credit    Instruments 

DISCUSSION   OF  TABLES. 

Retail  deposits  of  national  banks. — These  returns  are 
classified,  as  has  been  indicated,  by  banks  and  classes 
of  deposits.  Of  the  national  banks  5,452  sent  in  replies 
which  were  used.  The  aggregate  amount  deposited  by 
retail  dealers  in  these  banks  on  the  day  in  question  was 
$38,623,169.  Of  this  total,  $28,846,102,  or  74.7  per  cent, 
was  in  checks;  $8,066,669,  or  20.9  per  cent,  in  currency; 
and  $1,710,398,  or  4.4  per  cent,  in  coin.  The  State  in 
whose  deposits  the  largest  per  cent  of  checks  appears  is 
New  York,  with  86.6  per  cent.  The  State  showing  the 
smallest  per  cent  was  Rhode  Island,  with  58.9  per  cent. 
Thirty  States  show  a  percentage  of  credit  instruments  in 
retail  deposits  of  70  or  more.  Sixteen  show  a  percentage 
higher  than  60  and  less  than  70. 

Retail  deposits  of  state  hanks. — The  retail  deposits  of  the 
state  banks  aggregated  $15,527,047  from  4,288  banks. 
The  checks  amounted  to  $10,888,663,  or  7^  per  cent,  as 
compared  with  74.7  of  the  national  banks.  The  currency 
amounted  to  $3,678,578,  or  23.8  per  cent;  the  specie  to 
$959,806,  or  6.2  per  cent,  almost  equally  divided  between 
gold  and  silver.  The  highest  per  cent  shown  by  the 
returns  of  any  State  was  88  in  the  case  of  Wyoming. 
It  should  be  noted,  however,  that  the  aggregate  deposits 
of  the  12  banks  reported  for  Wyoming  were  only  $32,995. 
The  State  whose  returns  show  the  lowest  per  cent  among 
the  state  banks  is  Oklahoma,  with  45.2  per  cent.  Twenty- 
two  States  returned  percentages  of  70  or  more,  but  less 
than  88,  while  seventeen  show  percentages  of  60  and 
less  than  70.     The  lowest  percentage  of  checks  in  deposits 

69 


National    Monetary     Commission 

was  that  of  the  state  banks  in  the  District  of  Columbia. 
The  figure  is  41.8.  It  will  be  noted  that  the  percentages 
of  the  District  of  Columbia  were  lowest  for  the  national 
banks  also.  It  will  be  noted  also  that  Wyoming,  which 
stands  highest  in  the  per  cent  of  checks  returned  in  the 
state  banks,  stands  second  with  82.1  per  cent  according 
to  the  returns  from  the  national  banks. 

Retail  deposits  of  the  private  banks. — The  number  of 
private  banks  whose  returns  were  used  was  665.  The 
aggregate  deposits  returned  to  the  credit  of  retail  dealers 
was  $867,009.  Of  this  amount  $593,077,  or  68.4  per  cent, 
was  in  checks.  The  highest  percentage  returned  was  that 
of  Idaho,  92.9.  This,  however,  was  from  only  one  bank. 
Utah  returned  92  per  cent  from  two  banks;  Wyoming 
90.2  per  cent  from  one  bank.  More  than  one- third  of  the 
total  returns  were  from  203  private  banks  in  Illinois;  and 
these  show  69.8  per  cent  of  checks  and  other  credit  paper 
deposited.  Mississippi  makes  the  very  remarkable  show- 
ing of  I  per  cent  of  credit  documents,  but  the  returns  are 
from  only  one  bank  and  aggregate  only  $203.  The  figure 
therefore  has  no  significance  for  the  average. 

Fourteen  States  and  the  District  of  Columbia  gave  no 
returns  from  private  banks.  Nineteen  of  those  reply- 
ing returned  percentages  of  checks  higher  than  70.  Six 
showed  percentages  between  60  and  70  and  nine  between 
50  and  60.  Aside  from  that  of  Mississippi,  already  noted, 
the  lowest  per  cent  of  checks  in  the  deposits  was  in  Ala- 
bama, 26.2.     Here,  again,  only  one  bank  was  represented. 

If  we  consider  only  those  banks  of  this  group  which 
returned  deposits  of  $10,000  or  more  from  not  less  than 


T 


The    Use    of    Credit    Instruments 

eight  banks — those  of  Colorado,  IlUnois,  Indiana,  Iowa, 
Michigan,  Missouri,  New  York,  Ohio,  Pennsylvania,  South 
Dakota,  and  Texas — we  find  that  the  percentages  range 
from  51. 1  in  Michigan  to  87.5  in  South  Dakota. 

Retail  deposits  of  loan  and  trust  companies. — Of  these 
institutions  401  reported  aggregate  retail  deposits  of 
$5,039,511  made  on  the  day  in  question.  Of  this  amount 
$3,708,249,  or  73.6  per  cent,  were  in  checks;  $1,235,071, 
or  24.5,  in  currency;  and  $96,191,  or  1.9,  in  specie,  the 
silver  being  $23,717  more  than  the  gold.  No  usable 
returns  of  this  class  were  received  from  Alabama,  Arizona, 
California,  Florida,  Georgia,  Iowa,  Kansas,  Kentucky, 
Louisiana,  Michigan,  Mississippi,  Montana,  Nebraska, 
Nevada,  New  Mexico,  North  Dakota,  Oklahoma,  Oregon, 
South  Dakota,  Tennessee,  Texas,  Utah,  Virginia,  Wiscon- 
sin, or  Wyoming, 

The  largest  per  cent  snown,  93.4,  was  in  the  State  of 
Colorado,  from  5  banks.  Missouri  comes  next  with  83.2 
per  cent  from  16  banks.  Minnesota  stands  next  with 
83  per  cent  from  2  banks.  New  York  has  81  per  cent 
from  58  banks. 

Pennsylvania,  with  returns  from  126  banks,  shows  69.9 
per  cent.  It  is  noticeable  that  in  this  group  there  are 
five  States  which  show  more  than  80  per  cent  of  retail 
deposits  of  these  companies. 

The  lowest  per  cent  returned  is  22.5  from  one  bank  in 
South  CaroHna,  whose  deposits  of  this  class  on  the  day  in 
question  were  $1,579.  The  array  of  percentages  in  the 
loan  and  trust  companies  shows  a  greater  variation  than 


71 


National    Monetary     Commission 

in  the  case  of  the  three  preceding  classes  of  banking 
institutions. 

Retail  deposits  of  stock  savings  hanks. — The  aggregate 
deposits  of  this  class  returned  by  335  of  the  stock  savings 
banks  were  $377,495.  Of  this  amount  $241,877,  or  64.1 
per  cent,  was  in  checks;  $102,362,  or  27.1  per  cent,  was 
in  currency;  $33,256,  or  8.8  per  cent,  was  in  specie,  pretty 
evenly  divided  between  gold  and  silver,  but  with  a  pre- 
ponderance in  favor  of  the  gold  on  account  of  the  Cali- 
fornia deposits.  The  highest  percentage  of  credit  instru- 
ments returned  in  the  retail  deposits  of  this  class  of  banks 
was  96.4  from  two  banks  in  Missouri  with  aggregate 
deposits  of  $5,189. 

The  lowest  percentage,  7.2  per  cent,  is  shown  by  the 
deposits  of  two  banks  in  Louisiana  aggregating  $952. 
Two  banks  in  Virginia  with  $186  deposits  show  11.3  per 
cent  of  checks.  Six  banks  in  New  Hampshire  with  de- 
posits of  $1,102  show  19.5  per  cent;  two  in  Colorado  and 
Vermont  show  percentages  of  80  and  88.9  per  cent, 
respectively.  Four  States  give  percentages  higher  than 
70  and  four  between  60  and  70. 

Of  the  States  which  sent  replies  from  three  or  more 
banks  New  Hampshire  had  19,5  per  cent  of  credit  paper 
in  $1,102  deposits  in  six  banks. 

It  should  be  noted,  of  course,  in  considering  the  returns 
of  the  stock  saving  banks,  that  while  these  are  com- 
mercial banks  with  active  checking  accounts  in  the 
West,  in  States  Hke  Mississippi,  Louisiana,  and  New 
Hampshire,  they  are  probably  more  for  savings  accounts 
proper. 


73 


The     Use    of    Credit    Instruments 

Retail  deposits  of  the  mutual  savings  banks. — ^That  the 
mutual  savings  banks  returned  any  deposits  for  retail 
dealers  as  such  is  due  doubtless  to  the  literalness  with 
which  the  officers  of  a  few  of  these  banks  interpreted 
the  circular  of  inquiry.  Strictly  speaking,  the  deposits 
in  the  mutual  savings  banks  should  all  be  included  in 
one  class.  Nevertheless,  as  a  matter  of  interest,  they 
are  presented  with  the  same  classification  as  in  the  case 
of  the  other  banks. 

We  find  that  $12,491  are  returned  as  deposited  by 
retail  traders.  Of  this  amount  $1,324,  or  10.6  per  cent, 
was  in  checks;  $9,944,  or  79.7  per  cent,  in  currency; 
$1,223,  or  9.7  per  cent,  in  specie,  $1,070  of  this  being 
in  gold,  practically  all  deposited  in  the  New  York  banks. 
The  amounts  involved  are  so  small  that  the  returns 
have  no  significance  whatever,  of  course,  as  referring 
to  the  class  of  dealers  to  whom  they  are  accredited. 

We  shall  find  the  same  thing  true  of  the  depositors 
classified  as  wholesale  dealers  in  the  mutual  savings 
banks.  Therefore  the  important  table  for  this  class 
of  banks  is  the  "all  others." 

Aggregate  retail  deposits. — Tables  III  and  IV  show  the 
aggregate  retail  deposits  according  to  the  usual  classifica- 
tion, by  states  and  classes  of  banks. 

The  aggregate  retail  deposits  were  $60,446,722.  Of 
this  amount  $44,279,292,  or  73.2  per  cent,  were  in  credit 
documents,  as  against  67.4  per  cent  in  1896;  $13,314,650, 
or  22  per  cent,  were  in  currency,  and  $2,852,780,  or 
4.8  per  cent,  were  in  specie,  pretty  evenly  divided  be- 
tween gold  and  silver.     The  largest  volume  of  deposits 


73 


National    Monetary    Commission 

is  in  the  returns  of  the  national  banks  and  the  percent- 
age of  checks  in  these  deposits  is  74.7,  the  highest  shown 
by  any  class  of  banks.  The  loan  and  trust  companies 
come  next  with  73.7  per  cent,  but  their  total  deposits 
were  only  about  one-eighth  of  those  of  the  national 
banks.  The  third  in  order  of  percentage  is  the  state 
banks  and  the  percentage  of  credit  paper  in  their  de- 
posits is  70  in  aggregate  deposits  of  fifteen  and  one-half 
millions,  or  about  40  per  cent  of  the  deposits  of  the 
national  banks.  The  private  banks,  with  aggregate  retail 
deposits  of  $867,009,  show  68.4  per  cent  of  checks,  while 
the  stock  savings  banks,  with  deposits  of  $377,495,  show 
$64. 1  per  cent  of  checks.  The  mutual  savings  banks  show 
12.3  percent  in  checks  in  deposits  of  $12,491.  The  re- 
turns of  the  mutual  savings  banks  are  of  no  importance 
in  the  discussion  of  retail  deposits  as  such. 

What  now  do  these  figures  mean?  What  is  the  sig- 
nificance of  this  73.2  per  cent,  which,  on  the  basis  of 
the  returns,  is  the  proportion  of  checks  deposited  by 
retail  merchants?  The  real  interest  of  such  an  inves- 
tigation as  this  centers  on  these  retail  deposits.  There 
has  never  been  any  dispute  of  the  statement  that  90 
per  cent  of  the  wholesale  transactions  of  the  country 
are  settled  ordinarily  by  means  of  credit  paper.  The 
contention  has  been  that  the  method  of  settlement  of 
wholesale  payments  gave  no  indication  of  the  habits  of 
the  people  with  reference  to  the  use  of  money  and  checks. 
To  meet  this  point  the  inquiries  of  1894,  1896,  and  1909 
have  sought  to  secure  a  classification  of  the  deposits 
of  the  retail  merchants. 


74 


The     Use    of    Credit    Instruments 

It  is  very  clear  that  we  can  not  take  the  figures  on 
the  basis  of  tlie  returns  as  representing  exactly  the  pro- 
portion of  payments  made  by  the  people  of  this  coun- 
try with  checks  in  their  retail  purchases.  Various  allow- 
ances and  corrections  must  first  be  made  before  we  can 
reach  anything  like  a  satisfactory  conclusion. 

ALLOWANCES   AND   CORRECTIONS. 

Banks  not  heard  from. — The  number  of  banks  whose 
reports  were  used,  as  already  indicated,  was  11,491;  the 
total  number  of  different  kinds  of  banking  institutions 
in  the  country  at  the  time  of  this  inquiry  is  not  exactly 
known.  The  report  of  the  Comptroller  of  the  Currency, 
from  year  to  year,  purports  to  give  the  number  of  na- 
tional, state,  private,  and  other  banks,  and  for  the  year 
1908  the  number  given  is  25,000.  There  are  some  so-called 
banks,  however,  which  are  not  banks  in  the  ordinary 
sense  of  the  word.  For  example,  a  good  many  stock 
brokers  have  deposits  of  their  customers  waiting  for 
opportune  investments.  They  may  or  may  not  allow 
interest  on  these  accounts.  They  advertise  themselves, 
however,  as  doing  a  banking  business.  The  accounts 
are  not  checking  accounts,  nor  are  they  intended  to  be 
accounts  as  ordinarily  understood. 

On  April  28,  1909,  about  six  weeks  after  the  date  on 
which  the  deposits  were  called  for  in  this  inquiry,  there 
were  6,926  national  banks  reported  as  in  active  opera- 
tion. Of  the  whole  number,  5,551  replied  in  some  form 
to  this  inquiry,  and  the  returns  of  5,452  have  been  used — 
that  is,  80  per  cent  were  heard  from.     If  the  aggregate 

7071 — 10 6  75 


National    Monetary     Co  m  m  i s s  i o  n 

retail  deposits  of  the  banks  not  heard  from  is  in  the 
ratio  of  their  number  to  the  whole  number,  the  amount 
to  be  added  to  the  deposits  received,  in  order  to  get  the 
aggregate  retail  deposits  of  all  the  national  banks  on  the 
date  in  question,  would  be  about  $9,655,000,  making 
the  aggregate  deposits  by  retail  dealers  in  all  the  national 
banks  of  the  country  on  the  date  in  question  about 
$48,285,000. 

The  Comptroller's  report  in  1908  gave  the  aggregate 
number  of  state  banks  reporting  as  1 1,220.  Of  this  num- 
ber 4,630,  or  41  per  cent,  sent  in  returns,  of  which  4,302 
were  used.  The  aggregate  retail  deposits  of  this  number 
was  $15,527,047.  If  we  increase  the  deposits  of  the 
retail  dealers  of  the  state  banks  for  the  nonreporting 
banks  in  the  proportion  of  those  reporting,  the  retail 
deposits  for  all  the  state  banks  of  the  country  would  be 
about  $38,000,000.     This  is  probably  too  large. 

By  similar  processes  of  calculation  the  deposits  of 
private  banks  by  retail  dealers  on  the  day  in  question, 
after  allowance  is  made  for  nonreporting  banks,  would 
be  $1,150,000.  For  stock  savings  banks,  which  are 
really  commercial  banks,  the  figures  would  be  $750,000 
for  the  aggregate  of  retail  deposits  on  the  day  in  question. 
For  loan  and  trust  companies  the  retail  deposits  thus 
figured  would  be  $7,600,000.  We  need  not  include  the 
mutual  savings  banks.     The  total  is  $95,000,000. 

It  is  doubtful,  however,  whether  it  is  fair  to  increase 
the  deposits  of  state  banks  and  private  banks  in  the  ratio 
of  the  number  reporting  to  the  number  not  reporting, 
for  the  state  and  private  banks   which   sent  in  replies 


76 


The     Use    of    Credit    Instruments 

were  probably  in  the  main  located  in  the  larger  places. 
The  11,220  state  banks  reported  by  the  Comptroller 
had  $2,937,129,598  of  deposits.  This  is  an  average  of 
$261,000  for  each  state  bank.  The  average  individual 
deposits  of  the  national  banks  on  April  28  last  per  bank 
was  $656,000.  The  relative  commercial  importance  of 
the  national  bank  and  the  state  bank,  measured  by  the 
individual  deposits,  is  therefore  in  the  ratio  of  to  2.5  to  i. 
It  is  probably  greater  than  this.  In  allowing,  then,  for 
deposits  for  nonreporting  state  banks  it  would  be  fair 
to  add  a  smaller  sum  per  bank  than  the  average  shows. 
Moreover,  since  these  nonreporting  state  banks  were 
probably  the  smaller  banks,  the  amount  to  be  added  to 
the  check  deposits  should  be  proportionately  larger, 
because,  as  we  shall  see  later,  the  proportion  of  checks 
in  the  deposits  of  banks  in  agricultural  communities  runs 
very  high,  and  it  is  in  the  agricultural  communities  of 
the  West  that  we  find  the  stronghold  of  the  small  state 
commercial  banks. 

When  we  have  allowed  for  the  aggregate  deposits  of 
the  nonreporting  banks,  we  are  confronted  with  the 
question  what  proportion  we  shall  put  in  the  column  of 
checks  and  other  credit  documents.  It  has  been  urged 
in  the  past  in  the  discussion  of  this  topic  that  the  non- 
reporting  or  smaller  banks  will  likely  show  the  largest 
proportion  of  cash  in  their  deposits,  and  that  on  that  ac- 
count, in  making  allowances  for  their  returns,  the  propor- 
tion of  cash  entered  as  against  the  amount  of  checks 
should  be  larger.  The  present  inquiry  does  not  bear  out 
that  contention,  but  rather  the  opposite,  as  the  returns 
from  agricultural  districts  show. 

77 


National    M on  et a7^ y     Commission 

After  we  have  made  allowances  for  the  nonreporting 
banks  in  the  column  of  checks  for  each  class  of  banks 
and  added  the  proportion  shown  by  the  percentage-derived 
from  the  returns  of  those  which  sent  in  replies,  we  have 
a  grand  aggregate  of  deposits  of  retail  dealers  on  the  day 
of  our  inquiry  amounting  to  $95,000,000,  of  which  about 
70  per  cent  were  in  checks. 

Allowances  for  possible  excess  of  checks. — Do  these  bank 
deposits  give  a  true  view  of  the  payments  in  retail  trade? 
Do  the  payments  by  merchants  into  their  banks  fairly 
represent  the  payments  received  for  sales  of  goods? 
The  merchants  can  deposit  only  what  they  receive.  If 
they  deposit  checks  from  their  customers,  this  fact  can 
only  mean  that  the  customers  give  them  checks  in  pay- 
ment of  some  transactions  or  other.  Were  the  checks 
given  wholly  in  payment  for  goods  bought?  If  not,  for 
what  other  reasons  were  they  given  and  to  what  extent? 
There  are  several  sources  from  which  the  retail  dealers 
might  get  checks  which  show  in  their  bank  deposits. 
In  the  first  place,  merchants  cash  checks  for  their  cus- 
tomers and  friends  as  a  matter  of  accommodation.  So 
far  as  this  was  done  on  the  day  in  question,  the  proportion 
of  checks  in  the  merchants'  deposits  would  be  too  large. 
How  much  too  large  we  do  not  know.  In  the  few  cases 
in  which  the  writer  has  made  inquiry  he  has  been  told 
that  from  5  to  10  per  cent  would  cover  any  error  due  to 
this  cause.  Ten  per  cent,  the  larger  of  the  two  figures, 
was  given  by  one  of  the  largest  retail  dealers  in  Chicago. 
It  is  hardly  to  be  believed  that  so  large  a  percentage  is 
common.     One  can  hardly  believe  that  the  retail  stores 


78 


The    Use    of    Credit    Instruments 

of  the  country  cashed  nearly  $10,000,000  of  checks  as  a 
matter  of  accommodation  for  their  friends  on  the  day  of 
our  inquiry;  yet  this  is  what  they  must  have  done  if  they 
cashed  10  per  cent.  In  the  smaller  stores  where  the 
inquiry  was  made  the  percentage  ran  down  to  nothing. 
If  we  allow  5  per  cent  for  this  source  of  error,  we  shall,  in 
the  opinion  of  the  writer,  be  doing  enough  and  more. 

In  the  next  place,  the  merchants  often  cash  "pay 
checks"  or  take  them  in  payment  of  bills  or  purchases 
which  are  less  than  the  face  value  of  the  checks  and  give 
the  balance  to  the  customer  in  money.  Very  likely 
some  checks  of  this  class  are  included  in  the  deposits  of 
the  retail  dealers.  They  could  not  have  amounted  to 
much,  however,  for  the  day  of  the  inquiry  was  Tuesday, 
and  it  is  likely  that  pay  checks  received  on  Saturday 
would  have  been  turned  into  the  banks  by  Monday.  The 
correction  for  this  source  of  error  for  the  day  in  question 
must  be  insignificant. 

In  the  third  place,  we  must  remember  that  merchants 
do  not  all  deposit  daily.  The  deposits  made  by  some  mer- 
chants represent  the  receipts  of  from  two  to  six  days,  and 
even  longer.  In  so  far  as  the  accumulated  receipts  of 
several  days  appear  in  the  returns,  our  ratio  might  be 
affected.  It  is  doubtful,  however,  whether  any  allow- 
ance need  to  be  made  for  this  possible  source  of  error.  For, 
in  the  first  place,  the  dealers  who  do  this  are  those  whose 
business  is  small  and  who  are  not  within  convenient  reach 
of  a  bank;  in  the  second  place,  they  are  just  as  likely  to 
deposit  checks  as  cash;  and,  in  the  third  place,  Tuesday  is 
an  unlikely  day  for  such  deposits.  There  is  no  reason  to 
think  that  the  proportion  of  cash  and  checks  in  their 

79 


National    M on  et ar y     Commission 

receipts  from  day  to  day  would  show  large  variation.  In 
the  opinion  of  the  writer,  no  correction  needs  to  be  made 
on  this  account. 

It  has  been  urged  also  as  a  possible  source  of  error  that 
many  dealers  pay  their  wages  to  employees  and  other  ex- 
penses with  the  money  receipts  of  the  day  and  deposit  the 
balance.  In  so  far  as  merchants  follow  this  practice  the 
proportion  of  checks  in  their  deposits  would  be  too  large. 
We  have  no  way  of  checking  such  an  error.  In  some  in- 
stances a  firm  draws  a  check  against  itself  for  its  pay  roll 
and  other  expenses.  The  cash  is  taken  out  of  the  day's 
receipts  and  the  check  deposited  in  the  bank.  This  and 
similar  methods  of  wage  payment  would  swell  the  propor- 
tion of  the  merchants'  checks.  It  is  difficult  to  beUeve, 
however,  that  the  amount  involved  can  be  very  great  as 
compared  with  the  total  deposits  of  the  retail  merchants. 
But  however  great  or  small  the  amount,  it  would  be  re- 
duced to  a  minimum  in  the  returns  of  the  present  inquiry, 
because  the  day  of  the  week  selected  would  not  be  a  pay 
day,  to  a  large  extent,  anywhere  in  the  country.  For  this 
source  of  error,  again,  therefore,  we  need  make  no  correction. 
It  is  more  probable  that  a  small  error  occurs  from  paying 
out  money  for  certain  other  expenses  than  wages  on  the 
day  in  question.  Wc  must  remember,  however,  that  the 
merchant  has  a  bank  account  and  that  he  is  just  as  likely, 
perhaps  more  likely,  to  pay  his  bills  with  checks  as  with 
cash.  No  extensive  inquiry  on  this  point  has  been  made. 
In  the  few  cases  in  which  the  writer  was  able  to  ask  the  ques- 
tion, he  found  that  dealers  other  than  those  whose  busi- 
ness was  exceedingly  small  preferred  to  pay  with  checks 
because  they  can  keep  better  track  of  their  payments. 

80 


The    Use    of    Credit    Instruments 

Finally,  it  is  urged  that  checks  may  pass  through  several 
hands  before  they  reach  the  merchants  and  are  deposited 
by  them  in  the  banks,  and  that  they  may  be  deposited  in 
several  banks  on  the  same  day  before  reaching  the  place 
where  they  are  finally  paid.  Such  duplications,  however, 
could  not  occur  in  the  "deposits"  of  retail  merchants,  be- 
cause these  deposits  contain  the  checks  which  they  them- 
selves have  received  from  customers  and  other  individuals. 
These  duplications  will  appear  in  the  "all  others"  class  if 
these  should  include  the  deposits  of  banks  and  bankers. 
No  correction  needs  to  be  made  for  such  a  cause  of  error, 
therefore,  in  the  retail  figures. 

Ignorance  of  business  of  depositors. — Perhaps  the  first 
point  that  needs  to  be  settled  in  the  discussion  of  these 
returns  is  who  are  "retail  dealers."  The  term,  of  course, 
is  somewhat  indefinite.  Ordinarily,  we  think  of  the  retail 
dealer  as  one  who  sells  directly  to  the  consumer.  He  is 
generally  the  purveyor  of  what  are  called  finished  goods  to 
those  who  are  themselves  to  make  use  of  them  in  final  con- 
sumption. Even  this  is  not  quite  accurate,  but  the  phrase 
certainly  conveys  to  most  people  pretty  definitely  the  idea 
expressed  above.  Even  when  we  have  agreed  upon  a 
meaning  of  the  term  there  still  is  difficulty  from  the  fact 
that  some  merchants  do  both  a  wholesale  and  retail  busi- 
ness, and  do  not,  perhaps  can  not,  always  keep  their 
accounts  separate.  There  is  no  reason  to  think,  however, 
that  any  error  occurs  in  the  returns  from  confusion  as  to 
the  meaning  of  the  term  "retail  dealer."  As  was  pointed 
out  in  the  discussion  of  1896,  the  question  where,  for  exam- 
ple, we  shall  class  the  jobber  or  the  lumber  merchant. 


National    M  on  et  ar  y  -  C  o  mmi  s  s  i  o 


n 


depends  upon  the  community,  the  extent  of  the  business, 
and  the  point  of  view. 

Another  possible  source  of  confusion  in  the  returns  may- 
arise  from  the  impossibihty  that  banks  in  large  places  with 
a  large  number  of  customers  can  know  the  business  of  each 
individual.  In  all  but  the  larger  cities  it  is  very  likely  true 
that  this  would  not  be  the  case,  and  that  the  banks  would 
be  able  to  classify  with  fair  accuracy.  From  the  care  with 
which  replies  were  evidently  made  as  a  rule  it  is-  fair  to 
infer  that  the  banks  in  the  larger  cities  entered  as  retail 
dealers  only  those  of  whom  they  felt  sure.  Therefore, 
whatever  error  there  may  be  in  the  returns  on  account  of 
ignorance  of  the  business  of  particular  depositors  is  likely 
to  arise  from  the  inclusion  among  "all  other"  depositors 
of  retail  dealers  whose  business  was  not  known.  For  it  is 
in  that  third  group  that  the  unknown  would  be  classified. 

RETAIIv  RETURNS  BY  GEOGRAPHICAL  DIVISIONS. 

It  is  interesting  to  classify  the  returns  by  the  geograph- 
ical divisions  of  the  census  with  a  view  to  detecting  any 
evidence  of  differences  in  the  practice  of  paying  by  checks 
in  different  sections  of  the  country.  Of  the  whole  sixty- 
odd  millions  of  deposits  returned,  $27,000,000  were  in  the 
North  Atlantic  Division  and  75  per  cent  were  in  checks. 
The  North  Central  Division  had  a  total  of  something  over 
$20,000,000,  of  which  72.5  per  cent  were  in  checks.  The 
South  Atlantic  Division,  with  aggregate  deposits  of 
$3,325,000,  had  63.8  per  cent  in  checks.  The  South  Cen- 
tral Division  shows  retail  returns  of  $4,400,000,  of  which 
69.9  per  cent  were  in  checks.  The  deposits  of  the  Western 
Division  were  over  $5,000,000,  with  a  percentage  of  75.7 
in  checks.     The  average  is  73.2.    Following  are  the  tables: 

82 


The    Use    of    Credit     Instruments 


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These  percentages  are  striking.  Can  it  be  possible  that 
with  so  large  a  negro  population,  in  which  the  use  of  checks 
practically  does  not  exist,  the  method  of  payment  of  a 
community  for  its  purchases  can  be  fairly  represented  by 
the  percentages  of  the  South  Central  and  the  South  Atlan- 
tic divisions?  The  answer  is,  as  before,  that  the  real  con- 
sideration is  the  proportion  of  purchases,  not  the  propor- 
tion of  the  number  of  people  who  use  checks.  It  is  true 
that  there  are  millions  of  negroes  in  these  two  divisions. 
It  is  equally  true  that  in  the  distribution  of  wealth  their 
share  is  very  small  and  that  their  purchases  must  be  corre- 
spondingly so.  We  must  remember,  too,  that  a  large  num- 
ber of  plantation  negroes  and  workers  in  the  lumber  dis- 
tricts of  the  South  are  still  paid  to  a  considerable  extent 
by  orders  for  goods  on  the  stores  of  the  companies  for 
which  they  work.  Indeed,  one  might  almost  use  these 
averages  as  a  basis  for  a  study  of  the  distribution  of  wealth 
as  well  as  of  method  of  payments. 

CHECKS     IN     CITIES     AND     AGRICULTURAL     DISTRICTS. 

Reserve  cities. — It  is  sometimes  said  that  the  use  of 
checks  is  greatest  in  the  cities.  Those  who  claim  that  most 
of  the  proportion  of  business  done  by  means  of  checks  is 
composed  of  stock-exchange  transactions,  transactions  be- 
tween banks  and  wholesale  business  houses,  have  inferred 
that  a  small  proportion  of  check  payments  would  be  found 
in  the  country  districts. 

In  order  to  test  this  view,  the  percentages  have  Ijeen 
calculated  for  the  principal  reserve  cities  "  by  themselves, 
and  for  the  rest  of  the  country. 

tt There  seems  nothing  to  be  gained  by  calculating  the  returns  for  all  the 
reserve  cities  separately. 

86 


The     Use    of    Credit    Instruments 

The  returns  are  shown  for  the  various  classes  of  banks 
in  these  reserve  cities  in  order  that  no  undue  weight  may 
be  attached  to  the  class  of  banks  that  do  most  of  the 
business.  An  inspection  of  Table  VI  shows  that  these 
reserve  cities  had  $24,191,414  of  retail  deposits  and  that 
of  these,  80  per  cent  were  in  checks.  The  national  banks 
in  these  reserve  cities  had  $15,198,436,  of  which  84.2  per 
cent  were  in  checks.  The  state  banks  in  the  same  cities 
had  $6,035,175,  of  which  70.8  per  cent  were  in  checks. 
The  private  banks  had  $44,206,  of  which  47,8  per  cent  were 
in  checks.  The  loan  and  trust  companies  in  these  cities 
had  $2,824,387  of  the  retail  deposits,  of  which  78.6  per 
cent  were  in  checks.  The  stock  savings  banks  had  $79,050 
of  retail  deposits,  of  which  59.3  per  cent  were  in  checks 
and  the  mutual  savings  banks  had  $10,160,  with  3.6  per 
cent  in  checks. 


87 


National    Monetary     Commission 


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The     Use    of    Credit    Instruments 


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Country  without  reserve  cities. — If  we  take  the  returns  for 
the  rest  of  the  country  without  these  reserve  cities,  we  find 
that  the  retail  deposits  aggregate  $36,255,308,  of  which 
$24,929,620,  or  68.7  per  cent,  is  in  checks.  We  see,  there- 
fore, that  the  percentage  of  checks  in  the  retail  deposits 
outside  of  the  reserve  cities  was  pretty  high. 

If  we  examine  the  returns  of  agricultural  States  we  find 
the  same  thing  true.  The  following  table  shows  the  retail 
deposits  in  five  States,  less  the  deposits  in  cities  of  more 
than  25,000  in  1902-3,  according  to  Census  Bulletin  No.  20. 
The  percentage  runs  from  68.5  in  Texas  to  78.5  in  Nebraska 
and  the  average  for  retail  deposits  is  72.8.  Other  States, 
like  North  Dakota  and  South  Dakota,  in  which  there  are 
no  cities  of  this  size,  show  a  similar  state  of  affairs.  This 
goes  to  show  what  bankers  in  agricultural  districts  say — that 
the  farmers  are  using  checks  very  largely.  Indeed,  there 
is  a  great  change  in  this  respect  since  the  hard  times  of 
1 890-1 896.  Farmers  who  then  had  no  surplus  now  have 
bank  accounts,  and  there  has  been  a  notable  increase  in 
deposit  banking  and  therefore  in  payments  by  means  of 
checks. 

A  striking  illustration  of  the  large  use  of  checks  in  an 
agricultural  community  was  found  by  the  writer  in  the 
summer  on  the  Green  Bay  peninsula  in  Wisconsin.  In 
reply  to  questions  about  the  methods  of  doing  business, 
he  was  shown  some  checks  of  local  creameries  and  was 
told  that  of  payments  aggregating  about  $65,000,  for 
milk  and  cream,  by  one  of  these  in  two  years,  only  2  or 
3  per  cent  was  in  money  and  that  the  receipts  showed 
about  the  same  proportion.     The  business  of  the  other 


92 


The     Use     of    Credit    Instruments 

two  creameries  was  done  in  the  same  way.  The  post- 
master, from  whom  the  information  was  obtained,  added 
that  money  was  so  scarce  that  he  was  in  the  habit  of 
"cashing"  the  warrants  of  rural  carriers  with  local 
checks  to  use  the  warrants  for  remittance  to  the  money- 
order  department  of  the  post-office  instead  of  money. 
The  returns  of  retail  deposits  of  the  banks  at  Sturgeon 
Bay,  the  banking  center,  appear  to  validate  this  infor- 
mation.    They  show  95.9  per  cent  of  checks. 


93 


National    Monetary     Commission 


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94 


The     Use     of    C  7^  e  d  it    Instruments 

RETURNS  FROM  INDUSTRIAL  CENTERS. 

It  has  been  remarked  that  the  wage-earners,  especially 
manual  laborers,  probably  use  checks  to  a  very  small  ex- 
tent. If  we  examine  the  returns  from  industrial  cities  like 
Lawrence,  Fall  River,  Lowell,  and  Brockton,  Mass.; 
Paterson,  N.  J.;  and  Pawtucket,  R.  I.,  we  find  that  the' 
proportion  of  checks  in  retail  deposits  in  those  places  is 
well  up  with  the  average  of  the  general  tables.  Taking  the 
returns  from  the  national  banks  alone,  Lawrence  shows  a 
percentage  of  63  in  total  deposits  of  $72,198;  Fall  River 
80.7  per  cent  of  checks  in  deposits  of  $110,589;  Lowell  69 
per  cent  in  deposits  of  $79,567;  Brockton  shows  46.4  per 
cent  of  checks  in  a  total  of  $26,407;  Paterson  shows  52.6 
per  cent  in  a  total  of  $78,373. 

These  percentages  are  high  for  cities  where  the  number 
of  wage-earners  is  so  large.  We  must  remember,  however, 
that  it  is  the  proportion  of  purchases  thus  paid  for  that  we 
are  considering,  and  not  the  number  of  people  who  purchase. 
Again,  each  place  is  the  center  of  a  large  district  and  the 
deposits  of  the  merchants  represent  thousands  of  dollars  of 
sales  to  people  outside  of  the  cities  proper.  Moreover, 
one  fact  brought  out  by  the  returns  may  be  significant 
of  the  use  of  checks  by  wage-earners  themselves.  The 
mutual  savings  banks  are  commonly  regarded  as  the  banks 
of  the  poor  man,  particularly  the  wage-earner.  But  the 
mutual  savings  banks  in  Lawrence  show  41.9  per  cent  of 
their  total  receipts,  on  the  day  in  question,  in  checks. 
Those  of  Lowell  had  44  per  cent  in  checks.  But  these 
high  percentages  are  due  in  each  case  to  the  high  ratio  in 
one  bank.     On  the  other  hand,   of  the    deposits  in    the 

95 


National    Monetary     Commission 

mutual  savings  banks  of  Fall  River,  only  4  per  cent  were 
in  checks.  Each  of  these  deposits  aggregated  less  than 
$8,000. 

The  highest  percentage  of  checks  in  the  deposits  of  the 
mutual  savings  banks  almost  drives  us  to  one  of  two  con- 
clusions: Either  the  mutual  savings  banks  are  not,  par 
excellence,  the  banks  of  the  working  man,  or  else  the  work- 
ing man  uses  checks  to  a  large  degree. 

Evidence  of  pay  rolls. — The  following  table  of  wage 
payments  for  the  week  ending  March  13  were  furnished 
by  the  banks  in  reply  to  the  question  asking  them  to  send 
in  the  amount  of  pay  rolls  made  in  cash  and  in  checks 
respectively  for  the  said  week.  The  tables  are  given  in  de- 
tail by  banks  and  States  for  several  reasons.  They  are  given 
by  States  in  order  that  any  possible  connection  between  the 
payment  of  wages  and  the  industrial  character  of  the  State 
may  be  seen.  They  are  given  by  banks  partly  for  the  same 
reason  and  partly  to  get  some  light  on  the  question  whether 
any  particular  class  of  banks  is  resorted  to  more  than 
another  for  this  purpose. 

Table  VIII. — Wage  pay  rolls  for  week  ended  March  ij,  igog,  made  up  by 
national  banks,  state  banks,  private  banks,  loan  and  trust  companies,  stock 
savings  banks,  and  mutual  savings  banks. 

NATIONAL  BANKS. 


States. 

Pay  rolls  in — 

Cash. 

Checks. 

Cash. 

Checks. 

$54,537 

50.  400 

44.653 

1.349.  702 

845.367 
75.845 

Alabama 

$461,387 

23. 600 

62,935 

I. 194. 439 

517.848 

2, 148,363 

Per  cent. 
89.4 
31-9 
58.5 
470 
38.0 
96.6 

Per  cenf. 

Arizona 

68.  I 

Arkansas ■ 

41S 
S30 

California 

Colorado . 

Connecticut 

3-4 

96 


The     Use    of    Credit    Instruments 


Tabl,e;  VIII. — Wage  payrolls  for  week  ended  March  ij,  1909,  made  up  by 
national  banks,  state  banks,  private  banks,  loan  and  trust  companies,  stock 
savings  banks,  and  mutual  savings  banks — Continued. 
NATIONAL  BANKS— Continued. 


States. 


Delaware 

District  of  Columbia  _ 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New  Hampshire 

New  Jersey 

New  Mexico 

New  York 

North  Carolina 

North  Dakota 

Ohio 

Oklahoma 

Oregon 

Pennsylvania 

Rhode  Island 

South  Carolina 

South  Dakota 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 


Pay  rolls  in — 

Cash. 

Checks. 

Cash. 

Checks. 

Per  cent. 

Per  cent. 

$154,041 

$69,413 

69.  0 

31.0 

244. 719 

100, 963 

70.8 

29.  2 

568, 017 

70,372 

89.0 

II.  0 

610,362 

I,  on.  268 

37.6 

62.  4 

17,  220 

73, 124 

19.0 

81.0 

4,638,999 

2.688.921 

63.2 

16.8 

1,877,634 

524,327 

78.2 

21.8 

453,689 

430.930 

Si-4 

48.6 

279,924 

545.427 

33-9 

66.1 

S6i,024 

226, 059 

71.  2 

28.8 

331,701 

156. 280 

68.0 

32.0 

460, 990 

122.974 

78.9 

21.  I 

1.891,974 

383.851 

83.1 

16.  9 

8,  760, 233 

194. 016 

97.8 

2.  2 

948.423 

605.054 

61.  0 

39- 0 

901.567 

1.426.398 

38.8 

61.  2 

81.258 

55.796 

59-1 

40.9 

1.764.586 

I. 280.827 

57-9 

42.  I 

19.872 

394.395 

4.8 

95.3 

326.672 

557.479 

36.9 

63.1 

12. 250 

155.150 

7.3 

92.7 

506. 614 

58.505 

89.6 

10.  4 

2,363,092 

557, 118 

80.9 

19.  I 

27.370 

128, 100 

17.6 

82.4 

10, 253,924 

2,  319,  666 

81.7 

18.3 

202.881 

67.632 

750 

25   0 

20.051 

57,956 

25-7 

74-3 

5. 785, 622 

1,927.537 

750 

25.0 

173,730 

442,566 

28.3 

71.8 

61.777 

445.022 

13.  3 

87.8 

14,932.534 

1,695. 112 

89.8 

10.  a 

502.531 

5.  509 

98.9 

I.  I 

201.  018 

6.  no 

97.0 

30 

17,420 

179. 806 

8.8 

91.3 

558,546 

94.993 

85-5 

14.  S 

860, 736 

837.886 

50.7 

49.3 

108. 248 

290.370 

27.  I 

72.9 

219. 041 

30.664 

87.7 

12.3 

804.425 

161. 096 

83.3 

16.7 

171. 481 

750,775 

18.6 

81.4 

97 


National    Monetary     Commission 


Table  VIII. — Wage  pay  rolls  for  week  ended  March  13,  1909,  made  up  by 
national  banks,  state  banks,  private  banks,  loan  and  trust  companies,  stock 
savings  banks,  and  mutual  savings  banks — Continued. 

NATIONAL  BANKS— Continued. 


States. 

Pay  rolls  in — 

Cash. 

Checks. 

Cash. 

Checks. 

$332,036 

710, 272 

63.570 

$208, 217 

I, 045, 686 

52.678 

Per  cent. 
61. 5 
40.  5 

54-  7 

Per  cent. 
38.S 
S9.S 
45.  3 

Wyoming    . 

Total 

68, 192, 646 

24.856,532 

73-3 

26.7 
".7 

STATE  BANKS. 


Alabama 

Arizona 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

District  of  Columbia. 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New  Hampshire 

New  Jersey 

New  Mexico.. 

New  York 

North  Carohna 


Per  cent. 

$230,345 

$61,973 

78.8 

51.679 

199, 252 

20.7 

97. 216 

100, 870 

49.  I 

693.352 

842.833 

45-  I 

27.650 

34.425 

44-5 

231.348 

5.  500 

97-  7 

2,  722 

SO 

98.  2 

9.SOO 

1.258 

88.3 

48, 910 

19.386 

71.6 

125, 104 

54.395 

69.7 

12,735 

65,068 

16.  4 

2,411,845 

2,  561.476 

48.  5 

182,668 

236,  131 

43-6 

216, 462 

355.535 

37-9 

110,157 

243.321 

31-2 

231.410 

105.895 

68.4 

506,373 

105.053 

82.8 

39.411 

34.  560 

53-3 

47. 701 

38,723 

55-  2 

144.979 

7.318 

95-2 

801, 559 

564, 001 

58.7 

146, 467 

428,863 

25- S 

59.  150 

44.  518 

57-  I 

554.536 

703. 618 

44-  I 

30.950 

959.028 

3-  1 

20,861 

201,  467 

9.4 

86,  700 

206, 050 

29.  6 

11,874 

924 

92.8 

188.878 

1 1, 290 

94-4 

2,  600 

3.300 

44.  1 

5.687.395 

884.994 

86.5 

94.387 

42.978 

68.7 

Per  cent. 

31.  3 

79.3 
SO.  9 
349 
SSS 
2.3 
1.8 
11.7 
28.4 
30.3 
83.6 
Si-S 
56.4 
62.  I 
68.8 
31.6 
17.  3 
46.  7 
44.8 
4.8 
41-3 
74- S 
42.9 
SSS> 
96.9 
90.  6 
70.4 
7-  2 
5.6 
SS-9 
I3S 
31.3 


98 


The     Use    of    Credit    Instruments 


Table  VIII. — Wage  pay  rolls  for  week  ended  March  13,  igog,  made  up  by 
national  banks,  state  banks,  private  banks,  loan  and  trust  companies,  stock 
saiings  banks,  and  muttuil  savings  banks — Continued. 


STATE  BANKS— Continued. 


States. 


Pay  rolls  in- 


Cash. 


Cash.  Checks. 


Checks. 


North  Dakota  _ 

Ohio 

Oklahoma 

Oregon 

Pennsylvania.  - 
Rhode  Island. . 
South  Carolina. 
South  Dakota. . 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

West  Virginia.. 

Wisconsin 

Wyoming 


Total. 


84s. 127 

49.S86 

73.445 

, 126, 659 

927.836 

108, 000 

23.933 

162, 066 

99. 084 

26, 872 

16,  152 

136,316 

170, 900 

139. 9SI 

316, 469 

14. SSO 


426 
13s 
160 
697. 


243 

196 

49 

2 

S3 

619 

104 
475 


326 
654 
465 
355 
085 
417 
270 
163 
674 
353 
593 
200 
737 
050 
392 
182 
550 


Per  cent. 
18.8 
66.5 
26.8 
31-4 
61.  7 
99.8 
83.5 
10.  8 
40.  o 
3i-  6 
35-  2 
88.0 
71-  7 
21.  6 
57-3 
40.  o 
76.  2 


18.369,  746 


12,564.519 


61.  o 


Per  cent. 
81.  2 
33-  5 
73-  2 
68.6 
38.3 
.  2 
i6.5 
89.  2 
60.  o 
66.4 
64.8 
12.0 
28.3 
78.4 
42.  7 
60.  o 

23.8 


390 


PRIVATE  BANKS. 


Alabama 

Arkansas 

California 

Colorado 

Connecticut 

Florida 

Georgia 

Illinois 

Indiana 

Iowa 

Kansas 

Maryland 

Massachusetts . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 


$1,  560 
3.500 

1,  400 
3.  125 

10, 000 
I. 914 

2.  306 
112,  850 

75.238 

27,  229 

I.  795 

30 

19, 000 

34. 497 

1.470 

475 

3.830 

500 

99 


$250 


5. 100 
16. 550 

55 

I. 475 

2,  290 

334.  974 

49.058 

213. 707 

2,  082 


15.079 
4,  000 
1.650 
4.851 
2,  000 


Per  cent. 

86.  2 

100.  o 

21-  5 

159 

99-  5 
56.5 
50.  2 

25.  2 
60.  5 
11-3 
46.3 

100.  o 

100.  o 

69.6 

26.  9 
22.4 
44-  I 


Per  cent 


30.  4 
73-  I 
77-6- 
55-9 

80.  G 


National    Monetary     Commission 


Table  VIII. — Wage  payrolls  for  week  ended  March  13,  1909,  made  up  by 
national  banks,  state  banks,  private  batiks,  loan  and  trust  companies,  stock 
savings  banks,  and  mutual  savings  banks — Continued. 

PRIVATE  BANKvS— Continued. 


States. 


Nebraska 

New  York 

Ohio 

Oregon 

Pennsylvania. 
South  Dakota. 

Texas 

Utah.. 

Vermont 

Virginia 

Washington 

Wisconsin 


Pay  rolls  in — 


Cash. 


$7S 
57.848 
S7.S73 

728 
2S.  156 

535 
12,  293 

200 

268 
S.783 

300 

80  r 


Total  _ 


462, 279 


Checks. 


?io. 493 

28,798 

5.343 

7.552 

450 

31.  438 

500 


I,  421 
3,000 


742, 116 


Cash. 


Per  cent. 
100.  o 
84.6 
66.6 
12.  o 
76.8 
54.3 
28.1 

330 

100.  o 

80.3 

9-  I 


38.4 


Checks. 


Per  cent. 


iS-4 
33-4 
88.0 
23.  a 
45-7 
71.9 
67.  o 


19.  7 
90.9 


6i.6 


LOAN  AND  TRUST  COMPANIES. 


Arkansas 

California 

Colorado 

Connecticut 

Delaware 

District  of  Columbia  . 

Idaho 

Indiana 

Maine 

Maryland 

Massachusetts 

Minnesota 

Missouri 

New  Hampshire 

New  Jersey 

New  York 

North  Carolina 

Ohio 

Pennsylvania 

Rhode  Island 

Tennessee 

Vermont 


$12 

400 

16 

979 

I 

750 

150 

030 

16 

700 

20 

231 

24 

944 

151 

318 

19 

534 

173 

233 

2 

000 

544 

480 

17 

000 

739 

405 

608 

669 

52 

096 

8S 

224 

344 

127 

567 

202 

25 

29 

864 

$41 

095 

3t 

500 

2 

900 

3 

300 

28 

076 

2 

500 

45 

922 

46 

662 

300 

77 

323 

7 

957 

323 

6SS 

I 

500 

157 

071 

261 

21 1 

10 

189 

26 

000 

311 

003 

9 

054 

26 

2 

602 

Per  cent. 

23.  2 

100.  o 

5-3 

98.  I 

83.5 
41.9 

35-  2 
76.5 
98.5 
93.8 
20.  I 
62.  7 
91.9 
82. s 
80.6 
83.6 
76.6 

81.  2 

98.  S 

49.0 

92.  o 


Per  cent. 
76.8 


94.7 

1-9 

16.  5 

58.1 

100.  o 

64.8 

23- 5 

l-S 

6.2 

79-9 

37-3 

8.1 

175 

19.  4 

16.  4 

23.4 

18.8 

1-5 

51.0 

8.0 


The     Use    of    Credit    Instruments 


Table  VIII. — Wage  payrolls  for  week  ended  March  ij,  ipop,  made  up  by 
national  banks,  state  banks,  private  banks,  loan  and  trust  companies,  stock 
savings  banks,  and  mutual  savings  banks — Continued. 

LOAN  AND  TRUST  COMPANIES— Continued. 


States. 

Pay  rolls 

in — 

Cash. 

Checks. 

Cash. 

Checks. 

$5,  OOO 
500 

$20, 000 
200 

Per  cent. 
20.  0 
71S 

Per  cent. 

80.  0 

28.  s 

Total 

6,582,  711 

I, 410, 046 

82.4 

17.6 

STOCK  SAVINGS  BANKS. 


California 

District  of  Columbia. 

Georgia 

Idaho 

Illinois 

Iowa 

Kentucky 

Maryland 

Michigan 

New  Hampshire 

North  Carolina 

Ohio 

Pennsylvania 

Tennessee 

Texas 

Vermont 

Virginia 

Washington 

West  Virginia 


Total. 


$39,079 

4.70s 

12s 


283,638 

96,444 

I,  000 

I. 350 

71.306 

21, 000 

I,  000 

8.886 

31,547 

25. 719 


$155,525 

400 

ISO 

2,  000 

303.454 

493.661 


607 
52.  794 


Per  cent. 
19.  2 
92.  3 
45   5 


I.  13s 
4.  630 


2,  000 
6,  223 
I,  700 
I,  622 
250 
I. 545 


48-3 
16.  3 

100.  o 
69.  o 
57-5 

100.  o 
Hi 
58.8 
94-9 
94-  I 


42.4 
100.  o 


593.864 


36.  7 


Per  cent. 
80.8 
7.8 
54-5 
100.  o 
51-  7 
83.7 


310 
42.5 


66.7 

41.  2 

5-  I 

S-9 

100.  o 

57-6 


63.3 


MUTUAL  SAVINGS  BANKS. 


Connecticut 

Maine 

Maryland 

Massachusetts  _ 
South  Carolina - 

Total.. - 


$250 

1.850 

25 

136 

2.390 

4.651 


$250 


80 


Per  cent. 

100.  o 

88.  I 

100.  o 

100.  o 

96.8 

93-4 


6.6 


National    Monetary     Commission 

It  will  be  seen  from  the  tables  of  the  returns  of  4,306 
national  banks  which  furnished  this  information,  that 
pay  rolls  amounting  to  $68,192,646  were  made  up  in  cash 
and  $24,856,532  in  checks.  The  percentages  are  73.3 
and  26.7,  respectively.  The  largest  percentage  of  checks, 
95.2,  was  in  Montana,  and  it  v/ill  be  noticed  that  the 
percentages  run  highest  in  the  States  of  Arizona,  Colorado, 
Idaho,  Kansas,  Minnesota,  Montana,  Nevada,  Nevv^  Mex- 
ico, North  Dakota,  Oklahoma,  Oregon,  South  Dakota, 
Utah,  and  Washington.  These  are,  in  general,  agricul- 
tural States.  The  industrial  States  of  Connecticut,  Massa- 
chusetts, New  Jersey,  Pennsylvania,  and  Rhode  Island 
show  a  very  small  proportion  of  wage  payments  by 
checks.  South  Carolina  seems  peculiar  in  having  only 
3  per  cent  in  checks,  as  against  Georgia  with  62.4  and 
North  Carolina  with  25. 

The  returns  of  the  state  banks  show  pay  rolls  aggre- 
gating $18,369,746  in  cash  and  $12,564,519  in  checks,  the 
former  being  61  per  cent  and  the  latter  39  per  cent.  The 
amount  paid  in  checks  through  the  state  banks  is  half 
that  shown  by  the  national  banks,  while  the  amount  paid 
in  cash  is  about  one-fourth.  In  the  state  bank  returns 
the  check  percentages  run  highest  in  Arizona,  Idaho, 
Iowa,  Kansas,  Minnesota,  Montana,  Nebraska,  Nevada, 
North  Dakota,  Oklahoma,  Oregon,  South  Dakota,  Texas, 
and  Washington.  Again  we  see  the  agricultural  States 
to  the  front.  The  lowest  percentages  are  shown  by  the 
industrial  States,  as  in  the  preceding  group — Connecticut, 
Delaware,  Massachusetts,  New  Hampshire,  New  Jersey, 
and  Rhode  Island.     The  last-named  State  shows  only  0.2 


The     Use    of    Credit    Instruments 

per  cent  of  its  pay  rolls  in  checks;  New  Hampshire  has 
7.2  per  cent,  and  the  other  States  classed  here  as  industrial 
come  in  between. 

Turning  to  the  pay  rolls  made  by  the  private  banks,  the 
aggregate  is  small,  being  little  over  $1,000,000.  Of  the 
whole  amount,  however,  61.6  per  cent  w^as  in  checks. 
The  highest  percentages  are  in  California,  Colorado,  Illi- 
nois, Iowa,  Minnesota,  Mississippi,  Montana,  Oregon, 
Texas,  and  Washington.  We  find  the  agricultural  States 
again  with  the  largest  percentages. 

Similar  figures  for  the  loan  and  trust  companies  show 
that  of  the  aggregate  of  about  $8,000,000  in  pay  rolls 
17.6  per  cent  was  in  checks.  The  highest  percentage 
was  in  Colorado,  if  we  ignore  the  returns  of  one  bank  in 
Idaho,  all  paid  by  checks.  Minnesota  shows  about  80 
per  cent  and  Washington  also  has  80. 

Similar  figures  for  the  stock  savings  banks  show 
$1 ,500,000  in  payrolls,  with  Idaho,  Texas,  and  Washington 
showing  three  small  pay  rolls  all  in  checks,  while  Ken- 
tucky, New  Hampshire,  Virginia,  and  West  Virginia  show 
four  altogether  in  cash.  The  returns  of  the  mutual  sav- 
ings banks  are  trifling. 

We  have,  then,  an  aggregate  of  pay  rolls  for  the  week 
ending  March  13  of  $134,811,771,  of  which  30  per  cent 
was  in  checks  and  70  per  cent  in  cash.  It  should  be  said 
that  some  of  these  pay  rolls  were  not  actually  made  up. 
In  many  places  wages  are  paid  monthly,  and  in  a  good 
many  such  instances  the  banks  stated  that  fact  and 
returned  one-fourth  of  the  month's  pay  roll,  indicating, 
however,  how  it  was  made  up. 


103 


National    Monetary     Commission 

Of  course  there  is  no  way  of  knowing  how  many  people 
are  represented  in  this  wage  payment,  for  doubtless  sala- 
ries of  officers  are  included  as  well  as  wages.  The  figures 
show,  however,  that  a  large  number  of  the  wage-earners 
of  the  country  are  accustomed  to  receive  payment  by 
check,  and  that  this  custom  predominates  in  agricultural 
rather  than  in  industrial  sections  of  the  country.  This  is 
in  keeping  with  the  showing  made  by  all  the  other  tables 
that  the  proportion  of  checks  in  country  payments  is 
high.  The  showing  made  by  the  table  is  evidence  of  the 
fact  that  large  numbers  of  wage-earners  at  any  rate 
receive  checks,  whether  they  draw  them  or  not.  If  they 
receive  them,  they  must  cash  them.  In  some  cases,  un- 
questionably, the  pay  check  will  be  deposited  to  the 
account  of  the  recipient  and  he  will  draw  his  own  checks. 
In  the  large  majority  of  cases,  however,  the  probability 
is  that  these  checks  are  turned  into  the  stores  or  cashed 
at  the  banks.  There  is  some  reason  to  think  that  in  some 
places  they  are  largely  cashed  in  saloons.  Nevertheless, 
they  swell  the  volume  of  business  done  by  checks  to  the 
extent  to  which  they  are  used  in  paying  bills,  and  to  the 
degree  that  they  promote  the  use  of  bank  accounts  and 
checks  by  the  wage-earners  themselves.  There  is  no  way 
of  making  any  allowance  for  these  items. 

The  common  belief  is  that  wage-earners  do  not  use 
checks  in  making  payments  to  any  extent  worth  men- 
tioning. This  is  probably  true  if  by  wage-earners  is 
meant  the  manual  laborers.  People  in  clerical  posi- 
tions, with  no  larger  income  than  many  manual  laborers, 
are  users  of  checks  to  a  degree  as  large  proportionally 


104 


The     Use     of    Credit    Instruments 

as  wealthy  people.  The  manual  laborer  is  in  another 
class  in  this  respect.  He  is  usually  paid  by  the  week, 
or,  at  any  rate,  by  the  month.  Some  States,  indeed, 
now  require  weekly  payments.  In  so  far  as  they  do 
the  amount  which  each  person  receives  is  smaller  than 
if  the  wage  period  were  longer.  The  wages  received, 
therefore,  are  usually  too  small  to  be  the  basis  of  a  bank 
account.  The  banks,  it  is  urged,  do  not  want  such 
accounts.  This  statement,  however,  must  be  taken 
with  many  grains  of  allowance,  especially  in  the  smaller 
places.  Many  banks  in  small  places  are  glad  to  get  all 
accounts,  however  small. 

We  must  remember  that  the  volume  of  expenditures 
of  wage-earners,  in  the  sense  of  manual  laborers,  is,  after 
all,  not  so  large  a  proportion  of  the  total  expenditure 
of  the  country  as  would  drag  down  the  percentage  of 
business  done  by  checks  to  a  very  great  extent. 

Moreover,  the  use  of  pay  checks  makes  a  contribu- 
tion of  some  amount,  even  from  the  wage-earning  class, 
to  the  percentage  of  checks  in  doing  business.  If 
30,000,000  individual  wage-earners  had  spent  $1  a  day 
in  addition  to  the  amount  of  our  retail  bank  returns, 
and  had  spent  it  all  in  money,  the  total  retail  deposits 
would  have  been  $90,000,000,  approximately  the  sum 
obtained  after  allowance  for  returns  of  nonreporting 
banks.  With  the  amount  of  checks  deposited  remain- 
ing as  in  the  tables,  the  checks  would  still  be  50  per  cent 
of  the  payments. 

Returns  from  merchants. — When  the  investigation  of 
the  deposits  of  retail  tradesmen  was  luider  way  in  1894, 


105 


National    Monetary     Commission 

the  writer  requested  friends  in  different  parts  of  the 
country  to  secure  for  him  some  information  directly 
from  merchants  in  retail  trade  concerning  the  proportion 
of  their  receipts  in  checks  from  day  to  day.  The  infor- 
mation was  meager,  and  it  came  too  late  to  be  of  use 
to  the  Comptroller  in  1894.  It  was  included,  however, 
in  the  report  of  1896  and  will  be  found  there  in  detail. 
The  information  thus  received  has  been  made  the  basis 
of  some  criticism  of  the  report  of  1896  and  used  as  evi- 
dence that  a  large  proportion  of  the  people  pay  their 
retail  purchases  w4th  checks,  despite  the  showing  of 
the  bank  deposits.  For  that  reason  it  seems  worth 
while  to  discuss  the  value  of  the  evidence  received  at 
that  time  and  to  add  a  little  more  to  it  now.  In  the 
criticism  based  on  this  information  emphasis  has  been 
put  on  the  returns  which  were  lowest  and  but  little 
attention  paid  to  those  which  tallied  fairly  with  the 
general  percentage  shown  in  the  bank  reports;  and  so 
far  as  the  writer  knov/s  no  attempt  has  ever  been  made 
by  the  critics  to  reconcile  differences  or  to  give  a  reason- 
able explanation  for  assuming  that  the  lowest  returns 
were  the  proper  ones  to  choose  as  typical. 

The  first  place  mentioned  in  the  discussion  of  1896 
from  which  this  kind  of  evidence  was  secured  was  New 
Brunswick,  N.  J.  Of  four  stores  there  from  which 
reports  were  received,  three,  whose  patronage  was  gen- 
eral, received  a  trifle  over  51  per  cent  in  checks  in  pay- 
ment of  a  total  trade  of  somewhat  over  $10,000.  A 
fourth  grocery  store  there  received  1.6  per  cent,  but  its 
trade  for  the  whole  month  was  less  than  $1,000 — that 


106 


The     Use    of    Credit    Instruments 

is,  less  than  one-tenth  of  the  trade  of  the  other  three. 
But  the  important  matter  is  not  the  proportion  of  pur- 
chasers who  pay  by  check,  but  the  proportion  of  the 
volume  of  purchases  paid  for  by  check.  The  average 
percentage  of  the  four  groceries,  however,  is  47.5,  which 
is  almost  exactly  the  figure  of  the  bank  returns  for  the 
city  of  New  Brunswick  in  1896.  Two  grocers  and  two 
fuel  dealers  in  Lewiston,  Me.,  received  during  the  month 
of  September,  1894,  10  per  cent  and  25.4  per  cent,  re- 
spectively. There  is  reason  to  think  that  the  average 
of  these,  17  per  cent,  was  low. 

Undue  emphasis  has  been  placed  on  certain  returns 
from  Iowa  City,  Iowa.  The  returns  were  for  the  trade 
of  one  day,  a  Saturday,  November  24,  and  showed  that 
the  percentage  of  checks  received  "varied  from  2  in  the 
case  of  grocers  to  30  in  the  case  of  furniture  dealers, 
butchers,  and  dealers  in  flour  and  feed."  The  returns 
are  given  in  detail  in  the  report  of  1896.  To  one  who 
is  familiar  with  the  trading  customs  of  the  Middle  West 
there  is  nothing  at  all  surprising  in  this  showing,  and  it 
does  not  invalidate  so  fully  as  some  critics  have  thought 
the  average  proportion  of  checks  in  the  retail  bank 
returns  of  Iowa  City  at  that  time,  which  was  74  per 
cent.  Saturday  is  the  day  when  the  smaller  purchasers 
do  their  trading.  The  larger  purchasers  avoid  the  rush  of 
Saturday  trade  in  cities  of  this  kind  and  buy  in  the  quiet 
days  of  the  week.  No  attention  has  been  paid,  however, 
in  criticisms  of  these  Iowa  City  returns  to  the  percent- 
age of  checks  shown  in  the  running  accounts.  Attention 
has  been   called   to   the   cash   sales   only.     The  running 

7071 — 10 8  107 


National    Monetary     Commission 

accounts  of  the  returns  received  directly  from  merchants 
and  which  we  are  discussing  show  33  per  cent  of  checks 
in  Iowa  City,  44  in  'Davenport,  31  in  Winterset,  while 
the  percentage  of  checks  in  the  cash  sales  were  8.7  and 
7,  respectively.  But  the  running  accounts  outweigh 
the  cash  sales  of  the  day  many  times.  Therefore  even 
the  lowest  showing  for  the  proportion  of  checks  in  pay- 
ments to  merchants  in  these  places  at  this  time  would 
be  much  larger  than  the  14  of  which  so  much  may  be 
made  if  one  is  trying  to  prove  a  point  rather  than  to 
describe  the  situation  or  find  conclusions  based  on  all 
the  facts. 

The  table  giving  the  returns  from  Iowa  City  and  the 
other  two  places  mentioned  was  inserted  by  the  writer 
in  his  report  just  as  it  was  received.  It  will  be  seen  from 
an  inspection  of  that  table,  as  given  in  the  Comptroller's 
report  for  1896,  that  the  cash  and  running  accounts 
together  show  the  average  of  14  per  cent  in  checks. 
The  writer  has  always  questioned  whether  in  making  this 
average  the  cash  sales  and  the  running  accounts  were 
properly  weighted  according  to  their  volumes. 

Similar  remarks  will  apply  to  Lawrence,  Kans.  The 
percentage  shown  by  the  direct  replies  of  merchants  in 
1894  was  low.  As  a  matter  of  fact,  however,  it  is  probably 
demonstrable  that  as  Lawrence,  Kans.,  is  a  university 
town,  it  is  one  in  which  the  habit  of  paying  by  check  is  well 
developed. 

The  direct  data  of  1894  were  supplemented  in  1896  with 
information  representing  the  accounts  of  about  40  retail 
traders  for  a  month  each.  The  figures  were  in  substantial 
harmony  with  the  general  returns  of  the  banks. 

108 


The     Use    of    Credit    Instruments 

A  large  number  of  returns  direct  from  merchants  of  the 
character  of  their  receipts  from  day  to  day  for  a  week  or  a 
month  would  be  very  valuable  in  such  an  inquiry.  How- 
ever, the  writer  doubts  whether  they  would  change  the 
general  conclusion  as  to  the  proportion  of  checks  used  in 
retail  trades  if  proper  allowance  is  made  for  errors  in  the 
bank  returns,  as  was  done  in  1896.  It  would  not  seem 
worth  while,  therefore,  in  the  present  investigation  to  go 
extensively  into  this  phase  of  the  matter,  especially  when 
the  labor  entailed  in  the  analysis  of  the  1 2,000  bank  reports 
was  as  much  as  could  be  undertaken  in  the  limited  time  at 
the  writer's  disposal  before  the  report  had  to  be  made.  A 
few  test  cases,  however,  have  again  been  sought  and  are 
here  listed.  All  these  cases  are  in  Illinois,  although  not  in 
the  same  place. 

Returns  from  merchants. — Case  i :  A  retail  furniture 
store  on  one  day  took  in  $634,  of  which  $10  was  in  money; 
the  rest  was  in  checks.  On  another  day  it  took  in  $265, 
of  which  only  $10  was  in  money.  The  average  receipts 
of  this  store  from  month  to  month  show  not  much 
more  than  10  per  cent  in  money.  It  is  situated  in  a 
city  of  a  little  less  than  25,000.  Like  all  stores  in  such 
places  in  this  part  of  the  country,  it  has  a  large  farmers' 
trade. 

Case  2:  A  retail  butcher  reports  to  the  writer  $105  in 
money  in  a  total  of  $540. 

Case  3:  One  of  the  largest  retail  stores  in  the  city  of 
Chicago  reports  for  the  month  of  June,  52.9  per  cent  of  its 
receipts  in  checks.  This  is  one  of  the  stores  which  are 
thronged  every  Saturday  by  purchasers  of  all  classes. 


109 


National    M o  n  e  t  ai' y     Co  m  m  i s s  i o  n 

Case  4:  A  confectioner;  the  writer  supposed  that  here 
would  be  a  kind  of  business  in  which  checks  would  prob- 
ably not  appear  at  all.  The  proprietor  told  him  that  from 
5  to  10  per  cent  of  his  cash  sales  °  daily  were  paid  for  in 
checks  and  that  about  50  per  cent  of  his  "charged"  sales 
were  paid  for  with  checks.  The  "charged"  sales  wei"e 
three-fourths  of  the  total  sales  for  the  month,  so  that  the 
proportion  of  checks  in  his  total  month's  receipts  would  run 
about  40  per  cent. 

Case  5 :  A  retail  baker ;  here  again  the  writer  was  of  the 
opinion,  a  priori,  that  there  would  be  few  checks  in  the 
month's  receipts.  As  he  stood  and  watched  people  buying 
"  a  5-cent  loaf ,  "  "  10  cents' worth  of  cookies,"  "half  a  dozen 
rolls,"  for  half  an  hour  at  a  time  on  several  occasions,  before 
he  put  the  question  to  the  proprietor,  his  belief  was 
strengthened.  To  his  surprise,  the  proprietor  of  the 
bakery  told  him  that  while  none  of  his  cash  sales  were  paid 
for  by  check,  80  per  cent  of  his  "charged"  sales  were  so 
paid  for  and  that  they  amounted  to  about  50  per  cent  of 
his  business.  This  would  give  approximately  40  per  cent, 
in  his  case,  of  checks  in  his  total  payments. 

Case  6:  The  writer  then  went  into  a  barber  shop  think- 
ing that  here  he  certainly  would  find  the  place  where 
checks  were  unknown.  However,  as  he  entered  the  door 
the  first  thing  in  sight  was  a  large  array  of  the  shaving 
mugs  of  customers.  The  proprietor  said  that  he  received 
about  15  per  cent  of  his  month's  receipts  in  checks. 

Case  7:  This  was  for  one  of  the  largest  retail  general 
stores  in  the  city  of  Chicago,  in  which  one  can  buy  anything 

<*  A  "  cash  sale  "  is  a  sale  paid  for  at  the  time  of  purchase,  whether  the  pay- 
ment be  made  with  check  or  money. 


The     Use     of    C  7^  edit    Instruments 

from  a  case  of  pins  to  a  piano  or  a  diamond.  Its  patronage 
is  drawn  mainly  from  the  middle  class  of  wage-earners.  It 
reports:  "We  figure  about  15  per  cent  of  payments  for 
retail  purchases  are  paid  by  checks.  "  In  this  case  no 
statement  of  the  volume  of  business  was  given,  nor  of  the 
length  of  time  for  which  the  statement  is  made. 

Case  8 :  "  Notion  store  "  in  a  small  city.  In  this  store,  of 
a  total  of  $3,750  received  in  a  certain  period  of  time,  i  %  per 
cent  was  in  checks.  This  is  one  of  the  stores  sometimes 
called  in  different  parts  of  the  country  "five  and  ten  cent 
stores. " 

Case  9:  A  grocer  in  the  same  city  with  the  furniture 
store  first  mentioned.  This  store  is  known  as  a  strictly 
first-class  grocery  store,  and  professes  to  sell  "no  cheap 
goods, "  in  the  sense  of  poor  goods.  Its  reputation  is  of 
the  best.  The  proprietor  told  the  writer  that  on  an  aver- 
age, month  in  and  month  out,  probably  more  than  60  per 
cent  of  his  receipts  were  in  checks.  Of  course  there  are 
days  when  no  checks  come  in  for  cash  sales.  There 
are  other  days  when  they  are  received  pretty  heavily. 
On  the  Friday  on  which  the  writer  happened  to  call  on 
the  proprietor  there  were  no  checks  in  the  cash  sales, 
but  70  per  cent  of  the  sales  were  charged,  and  of  these  85 
per  cent,  he  said,  are  usually  paid  in  checks.  So  that  his 
average  of  probably  more  than  60  per  cent  was  sustained 
by  these  figures. 

Case  10:  A  druggist;  the  drug  business,  again,  is  one 
which  a  person  would  expect  the  money  payments  to  pre- 
dominate. The  writer  called  on  three  druggists.  One 
gave  the  actual  figures  of  his  business  for  a  certain  period 


National    Monetary     Commission 

and  was  able  to  tell  what  percentage  of  this  was  received 
in  the  form  of  credit  paper,  since  he,  like  some  other 
business  men,  keeps  track  of  every  check  he  receives.  It 
appeared  that  62  and  a  fraction  per  cent  of  his  receipts 
for  a  year  were  in  checks. 

Case  1 1 :  Another  druggist  <^  whose  store  is  of  the  same 
general  character,  reported  a  very  small  percentage  of 
checks  in  his  receipts — not  more  than  10,  he  thought. 
This  was  his  "  best  guess." 

Case  1 2 :  The  third  druggist  reported  as  his  ' '  best 
guess  "  a  figure  between  the  two  others,  about  25  per  cent. 

Case  13 :  Another  large  store  in  Chicago  doing  a  business 
of  many  millions  a  year,  and  catering  in  the  main  to  the 
middle  class  of  people.  Their  checks  and  money  orders 
for  the  month  of  May  were  17.7  per  cent  of  their  receipts 
and  in  June  15.1  per  cent. 

Case  14:  It  was  urged  on  the  writer  by  some  disputants 
that  the  street  car  companies  and  the  steam  raihoads 
would  certainly  show  a  very  small  percentage  of  checks 
in  their  receipts.  Of  course  this  is  true  because  of  their 
regulations  against  receiving  checks  and  because  the  fare 
is  such,  especially  on  the  street  car,  as  to  preclude  the  use 
of  checks.  However,  the  writer  decided  to  test  the  matter 
and  secured  figures  from  a  station  agent  on  an  important 
railroad  in  one  of  the  smaller  towns.  Of  course  his  state- 
ment showed  at  once  that  while  the  passenger  receipts 
were  practically  all  cash,  the  receipts  for  freight  payments 
showed  a  large  percentage  of  checks.     Checks  are  not 

"  It  should  be  said  that  although  called  drug  stores,  these  stores,  in  addi- 
tion to  their  drug  business,  sell  a  miscellaneous  assortment  of  articles,  since 
they  are  located  in  a  country  town. 


The     Use    of    Credit    Instruments 

received  at  the  passenger  offices  except  as  a  matter  of 
accommodation  to  well-known  patrons.  Perhaps  not 
more  than  5  per  cent  of  the  passenger  receipts  at  this  sta- 
tion are  in  checks,  and  they  are  taken,  as  has  been  noted, 
as  a  matter  of  accommodation.  This  practice,  however, 
is  much  more  general  than  one  might  at  first  think.  The 
total  receipts  and  the  percentage  of  receipts  in  cash  at  this 
station  on  freight  account  were  obtained  for  each  of  five 
days  and  showed  80.2,  95.3,  94.9,  89.1,  96.1,  and  92.1, 
respectively,  of  checks. 

Case  1 5 :  A  retail  clothier  reports  that  of  the  amount  of 
his  cash  sales  about  35  per  cent  is  paid  with  checks  and  of 
his  "charged"  sales  about  90  per  cent.  His  "charged" 
sales  are  about  three-fourths  of  his  total  sales.  This 
would  make  the  proportion  of  checks  in  his  total  sales 
probably  a  little  over  75  per  cent.  The  business  is  prin- 
cipally ready-made  clothing  and  gentlemen's  furnishings. 

Case  16:  A  department  store  in  a  town  of  20,000  in 
Illinois,  reports  that  about  18  per  cent  of  the  receipts  for 
sales  (not  including  checks  cashed)  is  in  checks.  This  pro- 
portion is  an  average  of  actual  receipts  for  three  months  in 
the  spring.  The  patronage  of  the  store  is  largely  wage- 
earners. 

Case  17:  This  was  for  a  department  store  in  the  same 
city  of  about  the  same  grade  and  catering  to  the  same 
general  class  of  people.  The  proportion  of  checks  in  its 
total  receipts  for  a  week  was  43. 

Case  18:  This  store  deals  principally  in  ladies'  furnish- 
ings, although  some  men's  furnishings  are  also  sold,  as  well 
as  lace  curtains  and  other  articles  of  that  kind  for  house 


113 


National    Monetary     Commission 

furnishing.  The  proportion  of  checks  in  a  week's  receipts 
in  August  for  cash  sales  alone  was  69.  In  addition  are 
to  be  counted  the  checks  in  payment  of  "charged"  sales 
which  were  23  per  cent  of  the  total  business.  About  90 
per  cent  of  the  charged  sales  were  paid  with  checks,  so 
that  the  percentage  of  checks  in  all  payments  is  about  73. 

Case  19:  A  considerable  percentage  of  the  checks  de- 
posited by  this  firm— a  great  department  store — are 
checks  which  they  have  cashed  for  customers.  The  pro- 
portion of  checks  deposited  to  total  receipts  averages  62 
per  cent  for  a  month.  The  following  extract  from  a  letter 
received  from  the  firm  explains  the  conditions :  "  We  cash  a 
great  many  teachers'  and  other  city  employees'  checks,  a 
very  small  proportion  of  which  applies  to  payments  of  ac- 
counts or  for  merchandise.  We  also  cash  a  great  many 
checks  for  our  customers,  as  it  frequently  is  much  more 
convenient  than  going  to  a  bank  for  their  funds.  It  is  also 
customary  for  a  great  many  employees  of  manufacturing 
concerns,  who  are  paid  by  check  to  cash  same  in  our  es- 
tablishment. Again  many  cash  customers  will  make  a 
purchase  of  a  few  dollars  and  draw  a  check  for  a  larger 
amoimt,  when  they  desire  some  currency.  As  we  have  a 
great  many  cashiers  all  over  the  house,  and  each  one  re- 
ceives checks,  it  is  impossible  when  they  come  to  the 
counting  room  for  us  to  determine  whether  they  have  been 
applied  in  whole  or  part  upon  purchases. 

"  I  presume  that  the  above  conditions  prevail  to  a  very 
much  larger  extent  in  our  retail  establishment  than  in  a 
majority  of  other  concerns.  You  will  readily  see  from  the 
points  enumerated  that  the  amount  of  checks  we  receive 


114 


The     Use     of    Credit    Instruments 

and  deposit  bears  no  relation  in  any  way  to  the  volume  of 
business  done,  as  a  very  large  amount  of  the  checks  would 
be  considered  as  'accommodation  banking.' 

"The  proportion  of  currency  in  our  bank  deposits  is 
comparatively  small,  as  our  heavy  pay  rolls  are  paid  from 
currency  receipts,  also  all  other  necessary  currency  dis- 
bursements." 

Case  20:  Another  great  department  store  in  Chicago, 
whose  yearly  business  reaches  into  the  millions,  reports: 
"  We  have  taken  several  months  as  a  basis  for  the  infor- 
mation which  you  desire,  and  find  that  the  percentage  of 
checks  to  our  total  receipts  is  46.45." 

Case  21:  A  retail  shoe  store  in  a  small  city  in  Illinois. 
The  receipts  of  several  months,  approximating  $30,000, 
showed  34  per  cent  in  checks. 

WHAT   THE    DEPOSITS   SHOW. 

What,  now,  do  the  figures  tell  us?  They  certainly  show 
what  the  merchants  deposited  and  what,  therefore,  they 
received.  They  must  include  the  money  and  the  checks 
received  in  payment  of  sales  of  goods,  in  so  far  as  expenses 
have  not  been  paid  in  the  meantime  from  these  receipts, 
plus  any  pay  checks  which  have  been  taken  in  settlement 
of  purchases,  but  in  excess  of  the  value  of  the  purchase,  so 
that  "change"  for  the  balance  was  given  the  customer. 

We  have  seen,  however,  that  the  pay  checks  and  ex- 
penses paid  are  in  all  probability  negligible  quantities  for 
the  day  in  question.  The  retail  deposits  on  this  occasion 
may  therefore  be  taken  as  fairly  representing  the  receipts 
of  the  merchants  for  sales,  plus  some  amount  of  checks 


"5 


National    Monetary     Commission 

cashed  as  a  matter  of  accommodation.  Except  for  this 
amount,  the  deposits  represent  therefore  the  payments 
for  purchases.  Some  running  accounts  are  doubtless  in- 
cluded, but  there  is  no  reason  for  thinking  that  the  propor- 
tion of  checks  in  the  payments  of  these  running  accounts 
was  less  than  the  average  shown  by  the  tables.  Doubtless 
a  good  many  merchants  did  not  "bank"  their  receipts. 
Let  us  assume,  however,  although  the  assumption  seems 
extravagant,  that  20,000,000  wage-earners  in  industrial 
pursuits  and  domestic  and  personal  service  spent,  each, 
60  cents  on  the  day  in  question,  all  in  money,  and  that 
only  half  of  this  found  its  way  into  our  statistics.  This 
would  give  us  $6,000,000  to  be  added  to  the  cash  side.  If, 
in  addition,  we  "guess"  at  10  per  cent  as  the  proportion 
of  the  whole,  which  on  this  "  nonsettlement "  day  were  for 
running  accounts,  we  may  make  allowances  as  follows: 


Deductions. 

Checks. 

Total. 

Checks. 

Total. 

$44, 279. 292 
8,840,543 

$60, 446, 722 

Deduct  checks  cashed: 

10  per  cent  of  all  checks. . 

10  per  cent  of  total,  for 
payments  on  account, 
in  ratio  of  tables  (73  per 
cent) - 

$4,427,929 
4,  412,  614 

54.427.929 
6.  aA±.  672 

10, 472, 601 

35.438.749 

49.  974.  121 

Add  to  total,  money  received  but  not  "banke 

1" 

Modified  returns,  with  allowances  for  deductions  and 

35.438,  749 

This  gives  us  63  per  cent  of  checks.     If  we  perform  a 
similar  operation  on  the  corrected  totals,  that  is,  the  re- 


116 


The     Use    of    Credit    Instruments 

turns  increased  by  the  amounts  allowed  for  the  banks 
which  did  not  report,  first  deducting  the  $6,000,000  money 
not  "banked"  from  the  corrected  check  totals,  we  find  an 
average  of  60  per  cent  of  checks. 

ESTIMATES   FROM   EXPENDITURE   AND   POPUIvATlON. 

We  may  make  an  estimate  of  the  average  total  retail 
expenditure  of  the  country  for  purposes  of  comparison 
with  the  retail  deposits  returned  by  the  banks  in  this 
inquiry. 

According  to  Bulletin  No.  77,  July,  1908,  of  the  United 
States  Bureau  of  Labor,  the  average  food  cost  per  working- 
man's  family  in  1907,  allowing  for  advances  in  prices  from 
the  figures  of  1901  which  were  taken  as  a  base,  was 
$374.75.  Allowing  10  per  cent  advance"  since  the  figures 
were  published,  the  average  food  cost  would  be  $412. 
This  expenditure  for  food  is  about  43  per  cent  of  the  total 
expenditure.  This  gives  $958  as  the  average  annual  ex- 
penditure of  each  workingman's  family,  or,  for  an  average 
family  of  five,  a  per  capita  daily  expenditure  of  about 
52  cents.  Let  us  take  this  as  the  average  for  those  in  the 
manufacturing  industries,  in  which  about  12,000,000 
people  are  employed,  representing,  perhaps,  36,000,000  of 
our  population.  This  is  on  the  assumption  that  half  are 
married  and  that  the  average  family  numbers  five  persons. 
Thus  we  get  for  total  daily  expenditure  for  this  class 
$18,720,000. 

fl  There  has  been  little  or  no  advance.  But  the  point  is  to  be  sure  not  to 
underestimate  the  expenditure  of  those  economic  classes  who  use  money 
more  largely  than  checks. 


117 


National    Monetary     Commission 

Other  classes  doubtless  are  spending  more  than  this. 
The  professional  classes,  the  farmers,  and  many  of  those  in 
what  is  called  "  personal  and  domestic  service,"  spent  more 
than  these  did.  Suppose  the  average  amount  is  80  cents, 
representing  an  annual  income  of  about  $1,500;  then 
the  total  daily  expenditure  of  the  other  classes  would  be 
about  $43,000,000,  giving  a  total  of  about  $60,000,000, 
estimating  the  population  at  90,000,000.  When  we  con- 
sider the  advance  in  wages  and  salaries  and  the  large 
amounts  spent  by  the  wealthy,  this  amount  appears  too 
small,  and  it  probably  is  so. 

The  report  of  the  Interstate  Commerce  Commission  for 
1907  gives  1,672,074  as  the  number  of  railway  employees 
in  the  year  ending  June  30,  1907.  The  aggregate  amount 
of  compensation  received  by  these  was  $1,072,386,427. 
This  is  an  average  yearly  wage  of  $641 ,  which  is  consider- 
ably higher  than  for  manufactures.  Of  the  whole  number 
of  employees,  however,  the  general  officers,  other  officers, 
general  office  clerks,  station  agents,  enginemen,  and  con- 
ductors receive  a  high  enough  wage  and  belong  to  the 
general  class  of  people  who  use  checks  to  justify  us  in  sup- 
posing that  a  considerable  proportion  of  them  keep  bank 
accounts  and  pay  with  checks.  Far  the  larger  proportion 
of  these  employees  receive  over  $2  a  day. 

About  50  per  cent  of  the  people  engaged  in  transporta- 
tion, as  well  as  in  manufacturing,  are  reported  by  the 
census  of  1900  as  married.  Undoubtedly  more  than  one 
member  of  each  family  is  working,  so  that  the  aggregate 
family  income  is  considerably  more  than  is  shown  by  the 
earnings  of  any  one  individual.  Women  in  manufactures 
receive  on  an  average  about  $300  a  year,  while  the  men 

118 


The     Use    of    Credit    Instruments 

receive  about  $500.  If  one  man  and  one  woman  in  the 
same  family  are  working,  w^e  would  have,  therefore,  an 
aggregate  family  income  of  from  $800  to  $1,000,  which  is 
approximately  the  amount  previously  estimated. 

The  matter  of  using  checks  is  largely  determined  by  the 
social  class  of  the  individual.  As  has  been  remarked  be- 
fore, a  clerk  with  an  income  of  $1,000  or  $1,200  would 
probably  have  a  bank  account  and  check  against  it,  when 
a  laborer  would  not.  The  same  is  true  in  a  measure  of 
teachers,  stenographers,  private  secretaries,  and  most 
of  the  other  people  employed  in  this  kind  of  personal 
sersdce.  The  same  is  true,  too,  to  a  much  greater  extent 
of  the  professional  classes  and  the  so-called  wealthy  class. 
Now,  those  who  use  checks  doubtless  make  far  the  largest 
part — possibly  90  per  cent — of  their  payments  therewith. 
Their  per  capita  expenditure  undoubtedly  exceeds  that  of 
the  wage-earning  class.  How  much  we  do  not  know,  but 
we  might  guess  that  it  would  be  more  than  double.  If, 
then,  we  consider  the  aggregate  of  the  expenditures  of  those 
people  in  trade  and  the  manufacturing  industries  and  in 
transportation  who  are  in  the  habit  of  using  checks,  to- 
gether with  those  of  the  various  classes  just  mentioned, 
concerning  whose  practice  there  is  little  doubt,  there 
seems  little  ground  for  not  believing  that  the  larger  pro- 
portion of  the  expenditure  of  the  community  is  made  by 
means  of  checks.  This  is  the  conclusion  to  which  our 
tables  also  point. 

Another  way  of  going  at  the  problem  may  perhaps  be 
based  on  the  character  of  the  population.  In  the  inquiry 
of  1896  there  was  a  discussion  of  the  probable  percentage 
of  checks  used  by  negroes  and  the  foreign  population.     An 

119 


National    Monetary     Commission 

inspection  of  the  table  of  occupations  of  negroes  in  1900 
shows  that  the  number  engaged  in  occupations  in  which 
they  would  be  likely  to  use  checks  is  very  small.  The 
whole  number  at  that  date  was  8,000,000,  and  of  these  less 
than  80,000  were  engaged  in  business  pursuits  in  which 
checks  would  ordinarily  be  used.  That  there  must  be 
some  use  of  checks  by  this  great  population  we  are  bound 
to  conclude,  not  only  because  some  of  them  are  engaged, 
as  just  said,  in  occupations  in  which  checks  are  ordinarily 
used,  but  also  because  no  inconsiderable  number  of  them 
have  amassed  fair  amounts  of  wealth.  Ten  years  ago 
there  were  156,372  negroes  who  owned  their  own  farms, 
and  about  30,000  more  who  were  part  owners. 

In  the  discussion  of  this  subject  in  1896,  5  per  cent 
was  the  average  assigned  in  the  negro  population  as  com- 
pared with  other  divisions  of  the  people  in  the  use  of 
checks.  This  must  be  weighted  by  their  probable  per 
capita  expenditure  in  computing  the  general  average.  As 
to  the  foreign  population,  practically  none  of  them,  in 
their  home  countries,  have  been  used  to  deposit  banking, 
and  are  therefore  unacquainted  with  payments  by  check. 
In  1896  it  was  found  that  among  the  foreign  popu- 
lation along  Milwaukee  avenue,  in  Chicago,  one  retail 
grocer  got  15.5  per  cent  of  his  proceeds  for  the  month  in 
checks,  one  butcher  10  per  cent,  a  coal  dealer  12  per  cent, 
one  clothier  9  per  cent,  one  dry-goods  merchant  19  per 
cent,  one  furniture  dealer  18  per  cent.  We  may  perhaps 
assume,  therefore,  that  15  per  cent  of  the  payments  of 
this  population  are  made  by  means  of  checks,  for  we 
must  remember  that  the  foreigner  learns  very  rapidly. 

The  native  white  population,  aside  from  the  wage- 
earners,  undoubtedly  are  users  of  checks  to  a  very  great 


The     Use    of    Credit    Instruments 

extent.  Payment  by  check  is,  of  course,  the  custom 
among  people  of  large  incomes,  and  probably  also  with 
all  classes  of  people  with  an  income  of  $1,200  or  more, 
in  all  occupations  excepting  manual  labor.  The  writer 
believes  that  it  will  be  found  true  that  of  two  men,  each 
with  an  income  of  $1,200  a  year,  the  one  making  his  as 
bookkeeper  or  by  other  clerical  service,  and  the  other  by 
manual  labor,  the  former  will  very  likely  have  a  bank  ac- 
count and  pay  his  bills  to  a  large  extent  with  checks, 
while  the  latter  will  pay  with  money. 

We  must  remember,  however,  that  what  we  are  try- 
ing to  get  is  the  average  volume  of  purchases  paid  for 
with  credit  documents.  We  are  not  trying  to  find  the 
number  of  people  who  use  checks.  If  one  person  pays 
out  as  much  as  ten  others  and  pays  all  his  bills  with 
checks,  the  percentage  of  business  payments  made  with 
checks  would  be  50,  although  the  number  of  people  would 
be  II,  only  one  of  whom  used  checks.  A  good  deal  of 
the  misapprehension  as  to  the  extent  of  the  use  of  checks 
in  business  payments  arises  from  not  keeping  clearly  in 
mind  the  distinction  between  the  proportion  of  people 
who  use  checks  and  the  proportion  of  business  done  with 
checks.     It  is  the  latter  that  we  are  discussing. 

The  returns  of  the  present  inquiry  certainly  do  not 
support  the  views  of  critics  who  assert  that  the  figure  as- 
signed from  the  investigation  of  1896  as  the  fair  one  to 
represent  the  proportion  of  retail  payments  made  with 
credit  paper  was  too  large.  That  figure  was  50  per  cent. 
A  careful  consideration  of  the  present  data  leads  the  writer 
to  believe  that  the  ratio  then  assigned  was  nearly  cor- 
rect, and  that  60  would  be  nearer  the  truth  to-day. 


National    Monetary     Commission 

THE   WHOIvESALE   RETURNS. 

We  come  now  to  a  discussion  of  the  returns  of  the 
deposits  of  wholesale  dealers.  In  this  term,  as  in  the 
case  of  retail  dealers,  there  is  likely  to  be  some  indefinite- 
ness.  A  merchant  or  firm  may  do  both  wholesale  and 
retail  business,  and  a  bank  may  not  be  able  to  distinguish 
his  deposits  as  retail  and  wholesale.  Occasionally  such 
cases  occurred,  but  not  many  were  specifically  mentioned 
and  the  whole  number  was  few.  There  can  not  be  more 
than  the  most  trifling  error,  if  any,  in  the  returns,  due  to 
this  cause. 

There  was  doubtless,  also,  some  question  in  the  minds 
of  a  good  many  of  the  correspondents  as  to  the  propriety 
of  including  certain  kinds  of  business  firms  under  the  term 
"wholesale  dealers,"  such  as  lumbermen  and  commission 
merchants.  These  latter,  however,  so  far  as  could  be 
determined,  were  all  classed  with  the  wholesale  dealers. 
Businesses  like  the  lumber  business  were  probably  classed 
under  "all  others  "  in  most  cases.  If  any  depositors  in  this 
or  similar  kinds  of  business  were  classed  with  wholesale 
dealers,  the  presence  of  their  deposits  would  introduce  no 
error  into  the  returns  because  their  methods  of  payment 
are  doubtless  the  same  as  those  of  wholesale  dealers. 

The  error  due  to  a  bank's  ignorance  of  the  business  of 
its  patrons  would  be  much  smaller  in  the  case  of  wholesale 
dealers  than  in  the  case  of  retail  traders.  A  wholesale 
merchant's  account  is  large  enough  to  make  the  bank 
sufficiently  interested  to  know  about  it.  He  undoubtedly 
is  an  occasional,  if  not  a  frequent,  borrower,  and  his  busi- 
ness therefore  would  be  known  to  his  banker.  So  far, 
then,  as  concerns  the  character  of  the  returns,  they  may 


The     Use    of    Credit    Instruments 

be  taken  as  reflecting  pretty  accurately  the  method  of 
payments  of  the  wholesale  merchants. 

We  must  remember,  however,  that  wholesale  trade, 
after  all,  is  a  relative  term,  if  we  have  regard  to  its  magni- 
tude in  an  individual  case.  A  man  may  class  himself  as 
a  wholesale  merchant,  and  yet  sell  goods  in  such  quantities 
as  would  be  regarded  as  small  by  a  wholesale  merchant  in 
the  same  line,  perhaps,  in  a  neighboring  city. 

The  classification  depends,  as  in  the  case  of  retail  mer- 
chants, not  so  much  on  the  amount  sold  as  on  the  class  of 
customers.  If  the  merchant  sells,  not  directly  to  con- 
sumers, but  to  retail  merchants  or  others  who  are  to  sell 
again  to  the  consumer,  he  may  properly  be  classed  as  a 
wholesale  dealer. 

Corrections  for  nonreplying  banks. — As  in  the  case  of  the 
retail  dealers,  we  might  make  some  allowance  for  banks 
which  did  not  reply.  This  can  not  be  in  proportion  to  the 
nonreplying  banks,  because  a  very  large  part  of  the  banks 
which  did  not  send  returns  are  the  smaller  state  and  pri- 
vate banks.  However,  it  is  hardly  worth  while  to  go  to 
the  trouble  of  making  such  a  correction,  for  the  evidence 
is  overwhelming  that  wherever  wholesale  business  is  done 
in  the  country  the  method  of  payment  used  is  preponder- 
atingly  by  means  of  checks.  The  percentage  of  checks  in 
payments  derived  from  three-fourths  of  the  deposits,  or 
even  one-half  of  the  deposits,  of  wholesale  merchants  in 
the  banks  in  the  country  would  doubtless  be  practically 
the  same  as  that  which  would  be  obtained  if  we  had  an 
exact  statement  of  the  entire  sum  of  the  deposits.  Follow- 
ing are  the  tables  of  deposits  of  wholesale  dealers  by  banks: 

7071 — 10 9  123 


National    Monetary     Commission 


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124 


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133 


National    Monetary     Commission 

DISCUSSION   OF    TABLES. 

The  wholesale  deposits  of  the  national  banks. — The  deposits 
of  wholesale  dealers  returned  by  the  5,452  national  banks 
aggregated  $102,397,773,  of  which  97.2  per  cent  were  in 
checks  and  other  credit  documents.  The  currency  aggre- 
gated $2,362,215,  or  2.3  per  cent;  and  the  specie  $563,203, 
or  about  one-half  of  i  per  cent,  two-fifths  being  silver  and 
three-fifths  gold.  In  this  table,  as  in  all  the  others,  in 
figuring  the  percentages,  the  small  amounts  of  gold,  silver, 
and  currency  have  been  favored  in  keeping  or  throwing 
away  fractions  of  i  per  cent. 

The  highest  percentage  shown  by  the  returns  is  99.2 
in  Nebraska;  Minnesota  has  98.8,  New  York  shows  98.7, 
Kansas  98.3,  Vermont  97.5,  Missouri  98.2,  Wisconsin  97.3, 
Illinois  98.1,  Massachusetts  97.8,  Pennsylvania  95.6.  The 
States  which  show  the  largest  volume  of  deposits  are  New 
York,  Illinois,  Massachusetts,  and  Pennsylvania.  The 
lowest  percentage  shown  by  any  of  the  States  is  that  of 
Arizona,  70.9.  The  total  deposits  there  were  $30,140. 
The  District  of  Columbia,  with  total  deposits  of  $161,239, 
has  79.3  per  cent  of  checks.  Nevada,  with  aggregate 
deposits  of  $10,797,  gives  a  return  of  85.7;  Wyoming 
with  $11,639  has  89.2  per  cent;  Alabama  with  $260,669, 
shows  89  per  cent.  No  other  State  shows  less  than  90 
per  cent. 

In  44  States  the  percentage  of  checks  in  deposits  is  over 
90;  in  24  States  it  is  over  95. 

The  wholesale  deposits  of  the  state  hanks.— The  4,288  state 
banks  from  which  replies  were  received  returned  wholesale 
deposits  amounting  to  $15,177,889.     Of  this  amount  92.4 

134 


The     Use    of    Credit    Instruments 

per  cent,  or  $14,037,492,  were  in  checks.  The  currency, 
$912,802,  was  6.1  per  cent  of  the  aggregate.  The  specie, 
$227,595,  was  about  1.5  per  cent,  and  gold  formed  about 
three-fifths  of  it. 

In  three  instances  the  percentage  of  checks  shown  in 
the  returns  is  100.  These  are  the  deposits  of  New  Mexico, 
Vermont,  and  Wyoming.  The  volume  of  deposits  in  each 
case,  however,  is  so  trifling  that  no  significance  attaches 
to  this  fact.  Otherwise,  the  percentages  run  very  like 
those  of  the  national  banks.  Aside  from  the  three  cases 
of  100  per  cent  just  mentioned,  the  highest  percentage 
returned  is  99.1  from  Idaho.  Iowa  has  98.9,  North 
Dakota  98.3,  Oregon  97.2,  South  Dakota  98.5,  and  New 
York  92.8. 

Omitting  the  three  cases  of  100  per  cent  already  men- 
tioned, as  not  being  significant,  14  States  show  a  percentage 
of  95  or  more,  and  30  of  90  or  more.  The  lowest  percent- 
age is  that  of  the  District  of  Columbia,  44.6;  but,  as 
remarked  before,  the  total  deposits  are  a  little  over  $4,000, 
and  therefore  trifling.  Nevada  has  54  per  cent,  but  here 
again  the  deposits  are  only  $3,000.  The  state  banks  are 
evidently  not  used  throughout  the  country  by  wholesale 
dealers  to  so  great  an  extent  as  the  national  banks. 
Nevertheless  the  proportion  of  checks  in  the  deposits 
runs  very  much  the  same. 

The  wholesale  deposits  of  the  private  hanks. — The  wholesale 
returns  of  private  banks  were  trifling,  being  in  the  aggre- 
gate only  $230,366.  More  than  half  the  returns  come  from 
four  states,  Ohio,  Virginia,  Texas,  and  Illinois.  Therefore 
they  are  not  significant. 


135 


National    M o  n  e  t  ai^ y     Commission 

The  wholesale  deposits  of  the  loan  atid  trust  companies. — 
The  aggregate  of  these  was  $6,780,000,  94.9  per  cent 
being  in  checks.  There  were  only  ten  States  in  which 
the  amount  of  deposits  was  large  enough  to  be  worthy  of 
consideration  for  our  purpose.  New  York  leads  with 
deposits  of  $2,670,267,  and  95  per  cent  of  them  in  checks. 
Massachusetts  comes  second  with  $1,953,447  and  97  per 
cent  in  checks.  Of  the  States  with  deposits  of  more  than 
$50,000,  the  highest  percentage,  97.4,  is  afforded  by  Mis- 
souri, from  deposits  of  $201,000.  The  lowest,  88.7,  is 
Pennsylvania,  whose  total  deposits  of  this  class  are 
$754,000. 

Nothing  need  be  said  about  the  wholesale  deposits 
of  the  savings  banks,  because  the  number  of  banks  and 
the  amount  involved  are  both  unimportant.  Moreover, 
as  has  been  already  remarked,  the  accounts  of  the  mutual 
savings  banks  in  no  case  have  any  bearing  upon  our 
present  inquiry. 

The  aggregate  wholesale  deposits. — Tables  X  and  XI 
give  the  aggregate  wholesale  deposits  in  all  reporting 
banks  by  states  and  by  classes  of  banks,  respectively. 
The  total  is  $124,823,762,  of  which  96.4  per  cent  is  in 
checks.  The  highest  percentage  is  that  of  Nebraska, 
99.2.  New  York  has  97.8,  and  so  is  fourth  in  the  list, 
Kansas,  Minnesota,  and  Nebraska  all  showing  larger 
percentages.  Massachusetts  shows  the  same  as  New 
York. 

The  percentage  of  checks  shown  in  the  table  of  whole- 
sale deposits  by  banks  is  approximately  the  same  for 
the  national  banks,  the  state  banks,  the  loan  and  trust 


136 


The     Use    of    Credit    Instruments 

companies,  and  the  stock  savings  bank.  The  loan  and 
trust  companies  show  the  highest  percentage.  The 
private  banks  show  84.8  per  cent  of  their  wholesale 
deposits  in  checks.  The  percentage  for  mutual  savings 
banks  is  not  significant. 

RETURNS    OF    WTIOIvESAI^E    DEPOSITS    IN    REPRESENTATIVE 
RESERVE  CITIES  AND  BY  GEOGRAPHICAL  DIVISIONS. 

There  is  no  reason  for  so  detailed  an  examination  of 
the  wholesale  returns  as  was  thought  necessary  in  the  case 
of  the  retail  deposits.  Nevertheless  the  data  are  pre- 
sented in  corresponding  tables  to  show  the  similarity  of 
practice  in  different  parts  of  the  country.  It  will  be  seen 
that,  despite  the  fact  that  so  large  a  part  of  the  business 
shown  by  the  returns  was  done  in  these  cities,  the  propor- 
tion of  payments  made  by  check  is  not  materially  different 
from  that  of  the  rest  of  the  country.  Nor  is  the  proportion 
for  the  country  at  large,  without  the  reserve  cities,  modi- 
fied much  by  omitting  the  reserve  cities.  There  is  a 
change  of  about  3  per  cent — from  about  97  to  94. 

Reserve  cities — Wholesale  deposits  of  national  banks. — It 
will  be  seen  that  of  the  deposits  returned  by  the  national 
banks  for  representative  reserve  cities,  98.2  per  cent  was 
in  the  form  of  credit  documents.  Remembering  what 
has  been  said  about  the  preponderating  influence  of  the 
national  banks  as  compared  with  other  commercial  banks, 
the  significance  of  this  high  figure  is  emphasized.  Of 
wholesale  deposits  of  sixty-five  odd  millions  returned  by 
the  national  banks  for  these  reserve  cities,  nearly  29  were 
in  New  York,  and  the  percentage  of  checks  and  other 


137 


National    Monetary     Commission 

credit  instruments  in  the  deposits  of  that  city  was  99.4. 
Boston  shows  98.6,  Cincinnati  96.8,  and  Chicago  and  St. 
Louis  each  have  98.4.  Thirteen  of  the  24  cities  show  95 
per  cent  of  checks  or  over  in  their  wholesale  deposits. 
Brooklyn's  figure  is  low  because,  of  course,  of  the  fact  that 
it  is  a  suburb  of  New  York,  and  its  business  is  mostly  done 
in  that  city. 

Reserve  cities — Wholesale  deposits  of  state  hanks. — The 
amount  in  this  case  is  insignificant,  being  a  little  less  than 
$8,000,000.  Of  this  whole  amount  over  $6,000,000  are  in 
the  deposits  of  the  three  central  reserve  cities.  The  per- 
centage of  Chicago,  93.8,  in  this  case  is  highest;  New 
York  shows  92.9,  St.  Louis  92.6.  The  amounts  involved 
in  the  other  cases  are  small. 

Reserve  cities — Wholesale  deposits  of  other  hanks. — The 
details  for  the  other  banks  show  no  peculiarities,  excepting 
that  the  amounts  involved  are  much  smaller  and  the  per- 
centages run  somewhat  lower.  Here,  again,  we  see  that 
these  banks,  aside  from  the  loan  and  trust  companies,  play 
a  relatively  small  part  in  the  volume  of  the  commercial 
life  of  the  country  when  contrasted  with  the  national 
banks.  The  tables  show  the  distribution  of  the  deposits 
among  the  various  classes  of  banks. 

Reserve  cities — Aggregate  wholesale  deposits. — The  table 
of  aggregate  wholesale  deposits  for  the  reserve  cities 
shows  that  the  percentages  run  highest  for  the  five  cities 
of  New  York,  Boston,  St.  Louis,  Chicago,  and  Philadelphia, 
in  the  order  named.  The  average  for  the  five  is  98.1  per 
cent  and  for  the  whole  country  97.4. 


138 


The     Use    of    Credit    Instruments 


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143 


National    Monetary     Commission 

Wholesale  deposits  by  geographical  divisions.- — The  returns 
for  the  different  geographical  divisions  of  the  country  show 
no  substantial  difference  in  the  proportion  of  checks  in 
total  deposits.  The  percentages  of  the  national  banks 
again  run  a  trifle  higher  and  involve  much  larger  sums. 
The  loan  and  trust  companies,  with  the  exception  of  the 
Western  Division  and  the  South  Central  Division,  also 
average  high.  In  the  case  of  each  of  the  divisions  men- 
tioned, however,  the  amount  of  deposits  returned  was 
trifling,  so  that  neither  of  these  figures  is  worth  consid- 
eration.    The  tables  follow. 


144 


The     Use     of    Credit    Instruments 


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National    M  o  n  et  ai^  y     Commission 


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146 


The     Use    of    Credit    Instruments 


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147 


National    Monetary     Commission 

Conclusion  as  to  wholesale  deposits. — There  is  no  reason 
to  think  that  the  percentage  of  checks  represented  in  the 
deposits  of  the  wholesale  dealers  of  the  various  classes  of 
banks  is  not  typical.  The  average  percentage  in  the  total 
wholesale  deposits  of  $124,823,762  is  96.3.  The  percent- 
age does  not  diffei  materially  in  the  small  cities  from  what 
is  shown  in  the  returns  of  the  banks  of  the  large  cities.  If 
we  eliminate  from  the  deposits  of  the  five  States  of  Illinois, 
Iowa,  Kansas,  Nebraska,  and  Texas  the  returns  from 
banks  in  cities  of  more  than  25,000,  as  was  done  in  the 
case  of  the  retail  deposits,  we  find,  as  the  following  table 
shows,  that  there  is  no  important  change. 


148 


The     Use     of    Credit    Instruments 


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149 


National    Monetary     Commission 

Moreover,  the  percentages  for  North  and  South  Dakota, 
in  which  there  are  no  cities  of  the  size  mentioned,  range 
among  the  highest.  There  are  no  important  sources  of 
error;  hence  no  ahowances  to  be  made  for  corrections. 
Further,  there  is  no  variation  of  importance  in  the  per- 
centages shown  by  the  different  classes  of  banks,  excepting 
of  course  the  mutual  savings  banks,  which  are  of  no  sig- 
nificance for  the  present  purpose.  The  general  conclusion 
is,  therefore,  that  no  reason  exists  for  not  accepting  96  as 
the  percentage  which  fairly  represents  the  proportion  of 
wholesale  business  of  the  country  done  by  checks  on  the 
day  in  question. 

THE   "ALIv   others"    class   OF  DEPOSITS. 

What  constitutes  the  class  of  "all  others"  deposits  in 
the  bank  returns  ?  The  intention  was  to  have  these  figures 
represent  the  deposits  of  all  accounts  excepting  those 
of  retail  and  wholesale  merchants  and  of  other  banks. 
This  seems  to  be  the  interpretation  put  upon  the  question 
by  nearly  all  the  banks  that  sent  in  replies.  However, 
some  were  in  doubt  whether  to  include  the  accounts 
of  other  banks  and  bankers  and  gave  figures  from 
both  points  of  view,  while  some  doubtless  included  the 
deposits  made  to  the  credit  of  other  banks.  Some  of  the 
blanks  returned  were  accompanied  with  letters  explaining 
the  character  of  the  "all  others"  class  in  the  bank  con- 
cerned. To  supplement  this  information  and  prevent  as 
far  as  possible  any  mistake  about  the  inclusion  of  the 
accounts  of  other  banks,  the  writer  asked  a  dozen  or  so 
of  the  correspondents  to  explain  what  kind  of  accounts 


150 


The     Use    of    Credit    Instruments 

were  included  in  this  class.  Except  in  one  case,  the  an- 
swers were  that  bank  accounts  were  not  included  and  that 
the  list  would  be  too  long  and  too  miscellaneous  to  give. 
However,  the  following  were  instanced:  Museums,  pub- 
lishers, railroads,  livery,  printers,  machinists,  travelers, 
hotels,  insurance,  treasurers  of  organizations,  real  estate, 
pool  rooms,  laundry,  professional  men,  brokers,  stock  and 
bond  financial  corporation  accounts,  church  and  charitable 
accounts,  public  funds,  students  and  college  professors, 
women,  "those  who  have  no  specific  business,"  and  all 
other  individual  accounts.  Of  course  many  other  classes 
are  included.  The  list  is  a  very  miscellaneous  one,  repre- 
senting pretty  nearly  all  classes  in  the  community.  Doubt- 
less the  deposits  of  corporations  and  other  business  firms 
constituted  a  large  part  of  the  deposits  of  this  class  made 
on  the  day  in  question. 

Allowances  and  corrections  to  he  made  in  the  figures  of  the 
''all  others"  class  of  deposits. — It  is  urged  by  critics  that 
in  this  class  there  must  be  a  great  many  duplications  of 
checks  already  counted.  It  is  difficult  to  see  how  this  is 
possible.  The  retail  merchant  has  deposited  his  receipts, 
the  wholesale  merchant  has  deposited  his  receipts,  and 
since  the  accounts  of  other  banks  are  nearly  all  excluded 
from  the  third  class,  it  is  difficult  to  see  how  there  can  be 
much  duplication. 

The  first  obvious  thing  to  do  is  to  add  to  the  returns 
received  an  amount  to  allow  for  the  deposits  of  banks  that 
did  not  reply.  In  the  opinion  of  the  writer  it  is  not  impor- 
tant to  do  this  for  this  class  of  deposits  any  more  than  it  is 
for  the  wholesale  deposits.     The  character  of  the  returns 


151 


National    Monetary     Commission 

is  too  nearly  uniform,  and  the  percentage  of  the  credit  docu- 
ments everywhere  ranges  about  the  same.  The  indica- 
tions are  that  the  percentage  of  credit  documents  in  any 
reasonable  proportion  of  the  total  returns  will  be  as  accu- 
rate as  a  percentage  derived  from  the  total  itself.  It  has 
been  urged  that  the  banks  which  do  not  reply  to  such 
inquiries  are  the  small  banks  in  the  agricultural  districts 
and  that  in  their  deposits  we  would  expect  naturally  a 
larger  proportion  of  money.  The  figures  show,  however, 
that  this  claim  is  not  well  founded.  The  proportion  of 
credit  paper  in  the  deposits  of  the  banks  of  the  agricultural 
portions  of  the  country  ranges  higher,  if  anything,  than  in 
the  cities,  so  far  as  concerns  the  retail  trade  and,  inferen- 
tially,  individual  deposits.  Moreover,  it  is  a  mere  assump- 
tion that  the  nonreporting  banks  are  mainly  the  small 
banks  in  the  country  districts.  A  great  many  city  banks 
also  did  not  report.  However,  even  if  we  were  to  admit 
the  point  and  were  to  add  the  total  deposits  of  the  non- 
reporting  banks  on  the  day  in  question,  and  class  them  all 
on  the  money  rather  than  the  credit  side  of  our  account, 
it  is  doubtful  whether  the  proportion  of  credit  paper  in  the 
total  receipts  would  be  materially  changed. 

It  is  in  this  third  class  of  deposits  that  we  find  the  ac- 
counts of  the  broker  and  the  speculator.  What  shall  we 
do  with  these?  In  discussing  this  subject,  Francis  A. 
Walker  once  said:"  "Was  I  not  justified  in  saying  that  a 
very  large  part  of  the  credit  transactions,  the  amount  of 
which  is  so  freely  adduced  to  show  the  comparative  insig- 
nificance of  the  cash  transactions,  are,  with  respect  to 


a  Discussions  in  Economics  and  Statistics,  1:204. 
152 


The     Use    of    Credit    Instruments 

that  object,  purely  fictitious?  Those  who  roh  as  sweet 
morsels  under  their  tongues  such  gigantic  figures  as  thirty 
and  forty  thousand  millions  a  year,  in  speaking  of  the 
work  of  a  single  clearing  house,  are  really  deceived  if 
they  think  that  these  sums  represent  either  transactions 
that  would  have  taken  place  did  not  the  clearing-house 
mill  stand  ready  to  take  the  grist,  or  transactions  the  non- 
existence of  which  would  impair  production  and  legiti- 
mate trade." 

The  remark  of  Mr.  Walker  is  true,  but  not  pertinent. 
Very  likely  the  vast  volume  of  these  transactions  would 
not  take  place  in  the  absence  of  our  credit  system,  or  if  it 
were  less  efficient.  It  is  true,  too,  doubtless,  that  the 
blotting  out  of  many  of  these  transactions  would  not 
impair  what  Mr.  Walker  calls  "legitimate  trade."  A 
large  proportion  of  deposits  in  this  "all  others"  class  un- 
doubtedly represents  speculative  transactions,  all  of  which, 
or  practically  all  of  which,  are  settled  with  credit  paper, 
and  most  of  which  the  business  of  the  country  might  well 
get  on  without.  This,  however,  is  no  reason  for  omitting 
them  from  consideration  in  the  inquiry  in  hand.  To  say 
that  they  are  not  a  part  of  legitimate  trade  and  therefore 
should  be  omitted,  is  beside  the  point.  The  important 
question  is  whether  they  constitute  a  part  of  the  demand 
for  a  medium  of  exchange.  The  "legitimacy"  is  not  in 
question.  It  would  be  just  as  reasonable  to  omit  from 
our  money  column  the  deposits  of  people  who  make  their 
living  by  gambling  with  cards,  or  at  horse  races,  or  in 
other  illegitimate  ways,  as  to  omit  the  "speculative"  or 
"fictitious "  transactions  in  the  credit  column  of  the  bank 


153 


National    Monetary     Commission 

returns.  These  transactions  call  for  money  for  reserve 
purposes  if  not  for  direct  payment;  therefore  they  con- 
stitute one  of  the  factors  in  the  demand  for  money.  For 
that  reason  they  should  be  included. 

If,  however,  the  whole  volume  of  "speculative"  trans- 
actions on  the  day  in  question  should  be  eliminated,  all  of 
it  being  regarded  as  represented  in  the  figures  of  our  de- 
posits by  checks,  the  proportion  of  checks  in  the  remain- 
ing deposits  would  evidently  still  be  over  90  per  cent. 
For,  surely,  of  the  $502,800,000  of  "all  others"  deposits 
not  more  than  half  were  probably  speculative  in  their 
character.  If,  therefore,  we  subtract  $250,000,000  from 
the  total,  and  also  subtract  $250,000,000  from  the  check 
account,  we  have  remaining  $232,000,000  odd  of  checks 
in  a  total  of  $252,000,000  of  deposits,  which  is  92.1  per 
cent. 

The  returns  of  ''all  other  depositors''  from  the  national 
hanks. — The  aggregate  deposits  of  the  "all  others"  class 
returned  by  the  national  banks  is  $407,268,393,  of  which 
96.8  per  cent,  or  $394,157,077,  was  in  checks.  Of  the 
whole  amount,  nearly  $230,000,000  were  returned  by  the 
banks  of  New  York,  and  99  per  cent  of  their  deposits  was 
in  credit  paper.  Massachusetts  had  $34,000,000  of  de- 
posits, of  which  97.1  per  cent  were  in  credit  paper.  Penn- 
sylvania had  $32,000,000  of  deposits,  with  92.4  per  cent 
of  checks.  Illinois  had  $25,000,000  of  deposits,  with  a 
percentage  of  96.3  in  checks.  California  shows  $7,000,000 
of  deposits,  of  which  94.8  per  cent  were  in  checks.  Mis- 
souri, with  $15,000,000  of  deposits,  had  97.4  per  cent  in 
checks;  and  the  Ohio  returns  show  nearly  $8,000,000  of 


154 


The     Use    of    Credit    Instruments 

deposits,  with  90.3  per  cent  in  checks.  The  highest  per- 
centage is  that  of  New  York,  the  99  akeady  mentioned; 
the  lowest  is  that  of  Rhode  Island,  which  shows  81.5, 
with  aggregate  deposits  of  $338,328.  Ten  States  show  a 
percentage  of  95  or  more  in  checks,  and  28  States  show 
a  percentage  of  90  or  more. 

The  all  other  deposits  of  state  hanks. — The  aggregate  de- 
posits of  this  class  in  the  retm^ns  of  the  state  banks  was 
$62,172,815,  or  less  than  one-sixth  of  the  figures  given  by 
the  national  banks.  Of  this  amount,  94.1  per  cent,  or 
$58,512,025,  w^ere  in  checks.  The  largest  deposits  of  this 
class  in  the  state  banks  of  any  State  were  those  of  New 
York,  aggregating  a  little  over  $34,600,000,  with  a  per- 
centage of  98  in  checks.  Illinois  shows  nearly  $7,000,000 
of  deposits  of  this  class  in  the  state  banks,  with  89.9  per 
cent  as  the  proportion  of  checks.  The  lowest  percentage 
returned  was  47.8  for  the  District  of  Columbia,  with  total 
deposits  of  $28,994.  I'he  returns  of  three  States  show  a 
percentage  of  checks  of  95  or  more;  17  States  show  90  or 
more.  The  averages  as  a  rule  run  a  trifle  lower  than  those 
of  the  national  banks,  but  the  difference  is  not  great  and 
the  amounts  involved  are  considerably  smaller. 

All  other  deposits  of  the  private  banks. — The  aggregate 
of  these  was  $2,198,677,  and  of  this  amount  $1,878,319, 
or  85.4  per  cent,  was  in  checks.  Omitting  the  returns 
of  the  two  States  of  Idaho  and  Wisconsin,  in  which 
the  total  deposits  were  in  checks,  but  insignificant  in 
amount,  we  find  that  the  highest  percentage  of  checks  was 
in  Massachusetts.  This  was  caused  by  the  returns  of  a  firm 
of  peculiar  character,  rather  stock  jobbing  than  banking, 

7071 — 10 II  155 


National    M on  et ar y     Commission 

and  the  deposits  were  the  money  of  customers  held  for 
investment.  It  is  therefore  not  a  fair  case.  Having 
regard  only  to  those  States  in  which  the  aggregate  de- 
posits of  this  class  exceeded  $50,000,  we  find  Illinois  in 
the  lead  with  deposits  of  over  $1,000,000,  with  90  per  cent 
in  checks.  The  next  largest  is  Indiana,  with  a  little  over 
$200,000  and  85  per  cent  in  checks.  Iowa  has  $250,000, 
with  94  per  cent  in  checks;  Ohio,  with  $186,000,  has  66 
per  cent  in  checks;  Pennsylvania,  with  $58,000,  has  50  per 
cent;  and  Texas,  with  $70,000,  has  83  per  cent.  The 
relatively  inferior  part  played  by  the  private  banks  in  the 
commercial  transactions  of  the  country  is  strikingly  em- 
phasized by  this  table. 

All  other  deposits  of  loan  and  trust  companies. — The 
sum  of  these  was  $27,650,000,  and  93.6  per  cent  of  this 
amount  was  deposited  in  the  form  of  checks.  Nearly 
half  of  the  total  amount  is  credited  to  New  York  State, 
the  amount  being  $12,576,000.  Massachusetts  has  a 
little  over  $5,000,000;  Pennsylvania  has  $2,871,000;  New 
Jersey,  $1,749,000;  Missouri,  $1,534,000.  Illinois  is  the 
only  other  State  whose  banks  of  this  kind  show  more 
than  $500,000  of  these  deposits.  Omitting  the  cases  in 
which  a  high  percentage  of  checks  was  derived  from  very 
small  returns,  we  find  that  New  York  leads  with  96.6 
per  cent  of  checks;  that  Maryland  is  second  with  95.8 
per  cent,  and  Massachusetts  third  with  95.5  per  cent 

All  other  deposits  of  the  savings  banks.  —  These 
amounted  to  $3,523,449,  of  which  $1,170,097,  or  33  per 
cent,  were  in  checks.  Of  the  whole  amount,  two  mil- 
lions are  to  be  credited  to  the  stock  savings  banks  and 


156 


The     Use    of    Credit    Instruments 

about  one  and  one-half  millions  to  the  mutual  savings 
banks.  The  stock  savings  banks  by  themselves  gave 
an  average  of  83.9  per  cent  in  checks.  Omitting  again 
two  unimportant  cases  in  which  the  percentage  of  checks 
deposited  was  100,  we  find  that  the  percentages  in  stock 
savings  banks  range  from  95.8  in  Pennsylvania,  with 
$367,000  of  deposits,  to  25,6  in  Alabama,  with  $481,000 
deposits.  Michigan  shows  76  per  cent,  with  $113,000 
deposits;  Illinois,  77.8,  with  $116,000;  California,  76.3, 
with  $439,000.  Ohio,  with  $60,000  deposits  has  64  per 
cent  in  checks. 

In  the  case  of  the  mutual  savings  banks,  including  under 
this  name  all  savings  banks  of  a  cooperative  character, 
we  find  the  percentage  of  checks  in  "  all  others  "  deposits, 
which,  of  course,  are  the  general  deposits,  running  much 
lower  than  for  the  commercial  banks.  The  average  is 
31.8  per  cent  of  total  deposits  of  $1,509,818.  It  is  re- 
markable that  the  percentage  should  be  so  high  for  these 
banks,  which,  it  has  been  commonly  supposed,  are  the 
banks  of  the  laboring  classes.  Some  of  the  deposits 
may  have  been  made  by  out-of-town  customers  with 
money  orders  or  drafts,  but  it  is  doubtful  whether  this 
amount  could  be  very  much  on  the  day  in  question. 
Massachusetts,  which  is  par  excellence  the  mutual  savings 
bank  State,  received  on  March  16,  in  the  banks  which 
reported,  $235,661,  of  which  38  per  cent  was  deposited 
in  the  form  of  checks.  New  York  State,  on  the  other 
hand,  w4th  its  trustee  savings  banks,  which  are  essentially 
of  the  same  class,  received  $776,561,  of  which  one-fourth, 
or  25  per  cent,  was  in  checks.     The  comparison  strength- 


15: 


National    Monetary     Commission 

ens  the  suspicion  which  some  students  of  the  subject 
have  had  for  some  time — that  the  savings  banks  of  Massa- 
chusetts are  used  pretty  largely  by  people  not  of  the 
laboring  class.  A  similar  inference  may  apparently  be 
drawn  from  Connecticut's  figures  of  $84,420  of  deposits 
with  35  per  cent  of  checks.  The  aggregate  returns  of 
all  classes  in  these  banks  is  $1,509,818,  of  which  $480,640, 
or  31.8  per  cent,  are  in  checks.  Such  a  showing  as  this 
does  not  strengthen  the  argument  against  postal  savings 
banks. 

The  percentage  of  the  figures  of  the  stock  savings 
banks  shows  pretty  clearly  that  they,  at  any  rate,  are  not 
the  banks  of  the  wage-earners. 

Conclusions  as  to  the  percentage  of  checks  in  all  others 
deposits. — The  total  deposits  of  this  class  are  $502,817,194, 
of  which  95.9  per  cent  were  in  checks.  Of  this  whole 
amount  $499,000,000  were  held  by  the  national  and 
state  banks  and  loan  and  trust  companies,  and  $481,- 
500,000  of  their  holdings  were  deposited  in  the  form  of 
checks  and  other  credit  instruments.  This  is  96.5  per 
cent.  The  deposits  of  these  institutions,  therefore, 
dominate  the  percentage  by  their  proportion  of  checks, 
which  is  only  six-tenths  of  i  per  cent  above  the  average. 
We  have  seen  that  to  this  class  of  deposits,  if  anywhere  in 
our  returns,  we  must  look  for  duplications  and  for  all  so- 
called  speculative  and  gambling  transactions  which  some 
people  would  throw  out.  We  have  seen  further,  however, 
that  most  of  the  banks  which  replied  to  the  circular  were 
careful  to  omit  from  this  class  their  deposits  of  banks  and 
bankers.     Some  such  deposits  were  undoubtedly  included. 


158 


The     Use    of    Credit    Instruments 

The  duplication  of  checks,  however,  is  not  as  great  as 
would  have  been  the  case  if  all  the  banks  had  included 
these.  No  reason  appears  for  thinking  that  the  percent- 
age of  checks  in  the  deposits  of  this  class  does  not  fairly 
represent  the  methods  of  payment  ordinarily  followed  by 
those  whose  accounts  made  up  these  deposits,  and  we 
may  fairly  take  the  average  of  95  as  representing  this 
class.  The  tables  follow,  arranged  as  for  the  other 
classes  of  deposits : 


159 


National    Monetary     Commission 


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National    M on  et ar y     Commission 

STUDY   OF   THE   AGGREGATE    FIGURES. 

If  we  add  the  various  kinds  of  receipts  of  all  classes 
of  dealers  in  all  kinds  of  banks  which  reported,  we 
get  a  grand  total  of  $688,087,678.  Of  this  vast  sum 
$647,239,813  were  deposited  in  the  form  of  checks  and 
other  credit  documents;  this  is  94  per  cent.  The  corre- 
sponding percentages  shown  by  the  returns  of  the  in- 
quiry of  1896  was  92.5.  Of  the  whole  amount  of  our 
present  total  $33,984,822  was  in  currency  and  $6,863,043 
in  specie,  pretty  evenly  divided  between  gold  and  silver. 
Of  the  total  deposits  nearly  half,  or  $330,907,747,  are 
credited  to  New  York  State,  and  her  percentage  of  checks 
is  97.7.  If  we  omit  New  York  State  altogether,  in  order 
to  eliminate  with  absolute  certaint}^  the  vast  mass  of 
speculative  transactions  occurring  on  the  New  York  City 
Stock  Exchange  which  lead  some  students  of  this  ques- 
tion to  doubt  whether  the  figures  represent  the  method 
of  payment  in  legitimate  trade,  we  have  a  grand  total  for 
the  rest  of  the  country  of  $357,179,935,  of  which  $323,- 
924,144  were  in  checks.  This  is  approximately  91  per 
cent. 

The  highest  percentage  shown  by  any  State  is  97.7,  for 
New  York.  The  lowest  is  that  of  the  District  of  Colum- 
bia, 76.  Massachusetts  comes  next  to  New  York  with 
95.6.  These  are  the  only  two  States  whose  percentages 
are  above  95.  California,  Illinois,  Iowa,  Kansas,  Louisi- 
ana, Minnesota,  Missouri,  Montana,  Nebraska,  Oregon, 
and  Wisconsin  are  all  90  or  more. 

Following  is  the  table  of  returns  by  States: 


180 


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The     Use    of    Credit    Instruments 

Distribution  of  aggregate  deposits  by  banks. — Of  the  whole 
amount  of  over  $688,000,000  shown  in  our  tables,  the  na- 
tional banks  reported  more  than  $548,000,000.  The  state 
banks  returned  about  $90,000,000  and  the  loan  and  trust 
companies  about  $40,000,000.  The  percentages  run  from 
31.8  in  the  mutual  savings  banks  to  95.3  in  the  national 
banks.  The  returns,  put  in  this  form,  bring  out  strikingly 
again  the  overwhelming  importance  of  the  national  banks 
in  our  commercial  activity,  although  their  number  is  so 
much  smaller  than  that  of  the  others.  They  bring  out, 
too,  the  fact  already  commented  on,  that  even  the  mutual 
savings  banks  receive  part  of  their  deposits  in  the  form 
of  checks.     The  table  follows: 


183 


National    Monetary     Commission 


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184 


The     Use    of    Credit    Instruments 

The  aggregate  deposits  of  all  classes  in  reserve  cities. — If 
we  look  at  the  returns  from  the  selected  reserve  cities  only, 
New  York  leads  again  with  98.5,  Boston  is  second  with 
97.5,  St.  Louis  is  third  with  95,  Chicago  is  fourth  with 
94.9,  Philadelphia  is  fifth  with  93.2.  The  other  reserve 
cities  have  a  percentage  of  checks  in  total  deposits  amount- 
ing to  88.9,  and  the  average  for  the  country  is  96.4.  Of 
the  whole  amount  of  deposits  in  reserve  cities,  New  York 
City  alone  has  more  than  half,  while  the  five  leading  cities 
have  all  but  $45,000,000.  The  following  table  gives  the 
details : 


185 


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The    Use    of    Credit    Instruments 

The  aggregate  percentage  shown  in  country  deposits. — For 
purposes  of  comparison  the  following  table  has  been  pre- 
pared to  show  the  aggregate  deposits  and  the  percentage 
of  checks  in  the  returns 'from  the  banks  of  certain  States, 
omitting  the  returns  from  banks  in  cities  of  25,000  or 
more.  The  table  shows  that  in  Iowa  90  per  cent  of  the 
returns  of  the  deposits  were  in  credit  documents ;  in  Kan- 
sas, 89.7;  Nebraska,  86.9.  The  tables  which  have  already 
been  given  showing  the  aggregate  returns  by  States  will 
show  that  other  agricultural  States  range  within  about 
the  same  limits. 


7071 — 10 13  187 


National    Monetary     Commission 


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The     Use    of    Credit    Instruments 

COLLATERAL  EVIDENCE  AS  TO  THE  USE  OF  CHECKS. 

Change  in  small  hills. — If  that  part  of  the  population 
of  the  country  which  makes  payments  wholly  or  partly 
with  cash  is  increasing  more  rapidly  than  the  rest  of  the 
country,  the  kind  of  currency  which  this  part  of  the 
population  uses  might  be  expected  to  increase  more 
rapidly  than  the  total  volume  of  currency.  Table  XXVI 
shows  the  total  volume  of  currency  outstanding,  by  five- 
year  periods,  by  denominations,  calculated  from  figures 
given  in  the  reports  of  the  Treasurer  of  the  United  States. 
Of  course  the  amount  outstanding  is  not  the  amount  in 
circulation,  yet  the  errors  probably  average  up  about  the 
same  from  year  to  year,  so  that  changes  in  the  amount 
outstanding  may  be  taken  as  a  fair  illustration  of  changes 
in  the  amount  in  active  use. 

We  give,  first,  the  sum  of  the  amounts  of  currency  of 
all  denominations  annually  outstanding,  for  five-year 
periods.  The  second  column  gives  corresponding  data 
for  currency  of  denominations  up  to  and  including  $20. 
The  next  column  gives  the  ratio  of  these  small  denomina- 
tions to  the  total  per  million.  The  other  columns  give 
similar  data  for  other  denominations.  There  is  no  marked 
increase  corresponding  to  the  increase  of  the  population, 
but  it  is  with  the  increase  of  the  population  rather  than 
the  volume  of  business  to  which  this  part  of  our  currency 
should  show  a  particular  sensitiveness.  The  ratios  for 
the  five-year  periods  show  a  periodicity,  with,  on  the 
whole,  an  upward  tendency,  but  the  increase  is  by  no 
means  great  enough  to  take  care  of  the  increased  volume 
of  business  in  the  period  in  question. 


National    Monetary     Commission 


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190 


The     Use    of    Credit    Instruments 

If  now  the  total  volume  of  business  has  been  expand- 
ing, as  we  know  it  has,  and  that  part  of  the  currency 
which  is  used  by  the  wage-earners  has  not  been  expand- 
ing regularly,  it  must  be  that  the  increased  volume  of 
payments  have  been  made  either  with  bills  of  large 
denominations  or  settled  by  means  of  credit.  If  we 
study  the  increase  in  the  volume  of  bills  of  large  denom- 
inations we  find  that  they  have  been  increasing  irregu- 
larly in  about  the  same  way  that  the  denominations  of 
$20  and  less  have  been  doing. 

These  remarks  apply  to  our  paper  money  only.  No 
account  has  been  taken  of  the  outstanding  volume  of 
silver  dollars  because  that  has  been  approximately  con- 
stant for  the  period  under  discussion,  nor  has  the  gold 
been  taken  into  account  because  very  likely  it  is  mostly 
in  the  banks. 

Evidence  from  the  number  of  hank  accounts. — The  banks 
were  asked  to  classify  their  accounts  according  to  the 
balances  on  hand  on  the  day  of  the  report.  They  returned 
the  number  of  accounts  whose  balance  was  under  $500, 
the  number  whose  balance  was  between  $500  and  $2,500, 
and  the  number  with  a  balance  over  $2,500.  The  aggre- 
gate of  the  first  class  is  11,975,000,  that  of  the  second 
class  is  2,548,995,  and  that  of  the  third  class  is  567,104. 
Undoubtedly  a  good  many  savings  accounts  are  included 
by  other  than  the  savings  banks.  It  would  have  been 
possible  to  determine  the  number  of  savings  accounts 
returned  by  the  stock  savings  banks  and  the  mutual 
savings  banks,  and  this  would  have  been  done  if  there 
had  been  less  uncertainty  as  to  the  number  of  savings 


191 


National    Monetary     Commission 

accounts  returned  by  the  other  classes  of  banks.  How- 
ever, 590  savings  banks  in  Cahfornia,  Connecticut,  Iowa, 
Maine,  Massachusetts,  Michigan,  New  Hampshire,  New 
Jersey,  New  York,  Ohio,  Philadelphia,  and  Rhode  Island 
had  2,699,620  accounts,  each  under  $500.  This  would 
give  us,  as  a  rough  estimate,  3,700,000  accounts  of  less 
than  $500  in  the  stock  and  mutual  savings  banks,  leaving 
8,200,000  such  accounts  in  the  other  classes  of  banks. 
Allowing  a  due  proportion  of  these  as  savings  accounts,  we 
have  probably  8,000,000  of  accounts  under  $500  in  the 
comm.ercial  banks  which  reported.  Of  course  these  are 
by  no  means  all  individual  accounts  nor  can  the  small- 
ness  of  the  balance  be  taken  as  a  sure  index  of  the  amount 
of  business  done  by  the  owner  of  the  account  nor  his 
economic  status  in  the  community.  Nevertheless,  on  the 
whole,  we  may  conclude  that  so  large  a  number  of  accounts 
with  this  small  balance  is  another  indication  of  the  wide- 
spread use  of  the  banking  facilities  accessible  throughout 
our  country. 


192 


The     Use    of    Credit    Instruments 


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194 


The     Use    of    Credit    Instruments 


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195 


National    Monetary     Commission 

FINAL  CONCLUSIONS  AS  TO  THE  AVERAGE  PROPORTION  OF 
PAYMENTS  MADE  WITH  CHECKS  AND  OTHER  CREDIT 
INSTRUMENTS. 

The  conclusion  reached  in  the  inquiry  of  1896  was 
that  at  least  80  per  cent  of  the  total  business  of  the  coun- 
try at  that  time  was  settled  by  means  of  credit  paper. 
The  average  per  cent  of  the  retail  deposits  made  in  the 
form  of  credit  instruments,  on  the  basis  of  the  returns 
of  that  year,  was  67.  In  the  present  returns  it  is  73 
per  cent.  The  discussion  in  the  report  of  1896,  which 
has  been  repeated  in  part  in  the  present  discussion,  with 
some  additional  points,  led  to  the  conclusion  that  "40 
per  cent  is  as  low  as  could  in  reason  be  claimed  to  be 
correct  and  that  55  per  cent  is,  all  things  considered, 
probably  about  correct."     This  is  for  retail  trade. 

From  the  present  discussion,  the  writer  is  of  the  opinion 
that  this  is  probably  too  low.  Undoubtedly  the  use  of 
checks  has  grown  considerably  in  the  past  fifteen  years. 
The  number  of  national  banks  increased  from  3,689  in 
July,  1896,  to  6,893  ^3^st  April,  while  the  number  of  state 
and  private  banks  and  loan  and  trust  companies  is  now 
about  14,550  as  against  about  5,700  thirteen  years  ago. 
The  percentage  of  increase  in  the  number  of  banks  in 
the  past  thirteen  years  is  about  128.  The  "banking 
power"  of  the  United  States  as  measured  by  the  Comp- 
troller of  the  Currency"  has  increased  242  per  cent  since 
1890.  In  the  meantime  the  population  of  the  country 
is  estimated  to  have  increased  from  about  70,000,000  in 

o  Reports  of  Comptroller,  1896,  p.  691,  and  1908,  p  458. 
196 


The     Use    of    Credit    Instruments 

1896  to  about  90,000,000  now.  In  other  words,  the 
banking  power  of  the  country  has  been  increasing  more 
rapidly  than  the  population.  Meantime  the  business 
of  the  country,  as  measured  by  the  total  bank  clearings 
in  1896  and  1908  has  increased  from  $51,977,799,114  to 
$126,238,694,398. 

The  total  estimated  circulating  medium  of  the  country 
has  increased  from  $1,506,434,966  to  $3,038,000,000. 
As  the  population  of  the  country  increases,  very  likely 
an  increasing  proportion  of  the  people  belong  to  the  wage- 
earning  class,  or  to  the  class  just  above,  with  relatively 
small  incomes.  If  so,  the  smaller  number  of  the  popu- 
lation with  the  larger  income  would  do  a  larger  propor- 
tion of  the  business,  and  it  is  this  class  who  most  com- 
monly make  their  payments  with  checks.  These  reflec- 
tions are  especially  applicable  in  a  period  of  prosperity 
such  as  this  country  has  on  the  whole  experienced  in  the 
past  fifteen  years.  Consequently,  it  is  altogether  likely 
that  the  percentage  of  the  volume  of  ordinary  payments 
made  by  check  has  been  increasing  somewhat,  as  the 
figures  of  the  bank  returns  would  seem  to  show.  In  the 
opinion  of  the  writer  it  would  not  be  far  out  of  the  way 
to  assume  that  60  per  cent  of  the  retail  trade  of  the  coun- 
try, under  existing  conditions,  is  paid  for  with  checks. 

We  have  found  no  reason  to  think  that  the  figures 
obtained  for  the  wholesale  trade  are  not  representative. 
So  far  as  the  writer  is  aware,  no  one  has  ever  produced 
any  evidence  that  invalidates  the  truth  of  the  common 
belief  that  90  per  cent  or  more  of  the  wholesale  business 
of  the  country  is  done  by  means  of  credit  paper.     In 


197 


National     Monetary     Commission 

getting  at  our  final  average  we  may  therefore  take  the 
figures  on  the  face  of  our  returns  as  substantially  correct. 
If  now  we  take  the  percentage  of  checks  in  the  retail 
payments  at  60  and  the  percentage  in  the  wholesale 
payments  at  95  and  weight  these  in  the  proportion  of  the 
deposits  returned  for  the  two  classes  of  dealers,  we  get 
86  as  the  average  percentage  of  retail  and  wholesale 
business  done  with  checks  and  other  credit  paper. 

It  is  not  a  matter  of  great  importance  whether  we  take 
the  figures  of  "all  others"  at  their  face  value  or  lessen 
them  by  a  considerable  amount  to  meet  the  objections 
that  have  been  discussed  as  to  the  duplication  of  checks, 
the  deposits  by  speculators,  etc.  The  writer  is  of  the 
opinion  that  this  form  of  demand  for  payment  should  not 
be  omitted.  If,  nevertheless,  we  omit  from  the  third  class 
of  deposits  "those  of  the  New  York  City  banks,  where  the 
greatest  speculative  transactions  take  place,  allow 
$6,000,000  for  retail  business  not  "banked,"  and  then 
weight  the  percentages  of  the  respective  classes  according 
to  the  volumes  of  deposits  with  the  $6,000,000  added  to 
the  retail  total  and  retail  cash,  and  New  York  City  out  of 
the  "  all  others  "  total,  we  reach  a  final  average  percentage 
of  88  as  that  which  represents  that  part  of  the  trade  of  the 
country  which  from  day  to  day  is  settled  by  means  of 
checks  and  other  credit  paper. 

The  conclusion  reached  in  1896  was  that  80  per  cent 
was  a  fair  probable  average.  Considering  the  facts  that 
the  volume  of  business  has  increased  more  rapidly  than 
population,  that  we  have  probably  one  bank  to  every 
4,000  people,  that  the  country  has  seen  a  long  period  of 


198 


The    Use    of    Credit    Instruments 

prosperity,  there  doubtless  has  been  some  increase  in  the 
use  of  checks.  Surely  we  may  conclude  that  the  1896 
percentage  was  not  too  high.  Very  likely  a  figure  between 
80  and  88  would  be  about  right. 

Is  the  use  of  checks  and  credit  instruments  increasing? 
It  has  been  said  that  the  use  of  checks  is  not  increasing, 
because  the  percentage  shown  in  the  bank  inquiries  of 
various  dates,  as  described  in  this  paper,  has  not  shown 
a  steady  increase.  On  June  30,  1881,  the  percentage  was 
given  as  95.1;  on  September  17,  1881,  it  was  94.1;  on 
July  I,  1890,  it  was  92.5;  on  September  17,  1890,  it  was 
91;  on  September  15,  1892,  it  was  90.6;  on  July  i,  1896, 
it  was  given  as  92.5;  and  on  March  16,  1909,  it  is  94. 
These  figures  can  not  be  used  as  the  basis  of  an  argument 
that  the  proportion  of  checks  used  in  payment  has 
increased.  That  the  absolute  volume  of  business  settled 
in  this  way  is  increasing,  no  one  denies.  The  variation 
in  these  percentages  seems  to  indicate  a  larger  propor- 
tion of  this  kind  of  settlement  in  June  and  July  than 
in  the  fall.  Still  it  would  not  be  safe  to  accept  this  infer- 
ence as  true  without  further  evidence.  The  opposite, 
however,  certainly  is  not  true.  The  movement  is  prob- 
ably periodic. 

SUMMARY. 

We  may  summarize  the  results  of  our  inquiry  and 
inferences  therefrom  briefly  as  follows: 

I.  In  the  first  place,  it  is  very  clear  that  a  large  pro- 
portion of  the  business  of  the  country,  even  the  retail 
trade,  is  done  by  means  of  credit  instruments.  While 
it  is  probably  true  that  wage-earners,  as  a  class,  do  not 


199 


National     Monetary     Commission 

commonly  use  checks,  it  is  also  true  that  a  great  many  of 
them  do.  Moreover,  the  use  of  checks  is  common  among 
people  who  derive  their  income  from  other  sources,  even 
though  it  be  not  larger  than  the  well-paid  day  laborer. 
We  are  justified,  therefore,  in  concluding  that  50  or  60 
per  cent  of  the  retail  trade  of  the  country  is  settled  in  this 
way. 

2.  There  is  no  reason  to  modify  the  percentage  of  checks 
in  the  wholesale  business  of  the  country.  The  figures 
of  the  table  are  probably  as  nearly  correct  as  any  that 
could  be  gotten.  Over  90  per  cent  of  the  wholesale  trade 
of  the  country  is  done  with  checks  and  other  credit  docu- 
ments. 

3.  The  very  general  use  of  checks  is  shown  in  the  depos- 
its of  "all  other"  depositors.  The  average  is  close  up  to 
that  of  the  wholesale  trade,  and  while  many  corporations, 
public  and  private,  are  doubtless  represented  here,  and 
many  speculative  transactions  are  included,  there  is  no 
reason  for  excluding  any  one  of  those  in  determining  the 
proportion  of  business  done,  whatever  we  may  think  of 
its  legitimacy  from  the  point  of  view  of  public  morals 
or  public  utility. 

4.  The  use  of  checks  is  promoted  in  a  measure  by  the 
payment  of  wages  by  check.  It  appears  from  our  inves- 
tigation that  of  weekly  pay  rolls  reported  by  the  banks, 
aggregating  $134,800,000  for  the  week  ending  March  13 
last,  70  per  cent  was  in  checks.  These  pay  checks  are 
probably  cashed  largely  by  the  merchants  and  would 
appear  in  their  accounts  mainly  on  the  following  Satur- 
day or  Monday.     Some  doubtless  got  into  our  deposits 


The     Use    of    Credit    Instruments 

on  the  Tuesday  for  which  we  have  returns.  However, 
they  may  be  counted,  in  part  at  least,  as  checks  used  in 
the  settlement  of  transactions,  because  in  most  cases 
they  would  be  given  in  settlement  of  an  account,  the 
owner  getting  back  the  difference  between  his  account 
and  the  check. 

5.  The  great  use  of  checks  is  shown  also  by  the  large 
number  of  accounts  imder  $500.  This  evidence  is  not 
conclusive,  but  shows  a  tendency.  Of  course,  the  ac- 
counts include  not  only  those  of  individuals,  but  of  firms, 
corporations,  and    others. 

6.  We  may  therefore  safely  accept  an  average  of  80  to 
85  per  cent  as  the  probable  percentage  of  business  of  this 
country  done  by  check. 

7.  The  fact  that  so  large  a  proportion  of  business  is  done 
with  credit  paper  may  or  may  not  be  a  good  thing. 
Whether  it  is  or  not  depends  on  circumstances.  If  any 
part  of  the  country  is  compelled  to  use  checks  because 
of  the  lack  of  currency,  when  it  would  prefer  the  latter, 
the  situation  is  an  evil. 

8.  The  transaction  of  so  large  a  volume  of  our  business 
by  checks  is  an  element  of  danger  in  times  of  stringency 
and  crisis.  In  such  times  the  uncanceled  balance  of  credit 
transactions  creates  a  larger  demand  for  money,  but  the 
habit  of  settling  by  check  has  meantime  kept  the  available 
amotmt  of  money  at  a  minimum. 

9.  Consequently  there  ought  to  be  some  means  of  sup- 
plying additional  currency  when  credit  as  a  means  of 
payment  diminishes.  This  currency  ought  to  be  as  safe 
and  as  uniform  as  the  ordinary  currency,  and  it  should 


National    Monetary     Commission 

be  capable  of  being  quickly  emitted  and  recalled.     That 
is,  it  should  possess  elasticity. 

ID.  The  large  money  circulation  of  the  country  is  ex- 
plained by  the  facts  that  our  prices  and  wages  range 
high,  that  our  people  probably  carry  a  larger  average 
amount  of  money  on  their  persons  than  do  foreigners,  that 
some  portion  of  our  currency  has  been  destroyed  or  lost 
or  hoarded,  and  that  some  of  our  money  is  abroad  in  the 
hands  of  money  brokers  and  others.  Finally,  as  our  busi- 
ness grows,  the  amount  of  money  needed  as  reserve  to 
perform  this  vast  volume  of  business  transactions  increases, 
too. 

1 1 .  The  amount  of  money  released  by  our  credit  trans- 
actions is  not  equal  in  amount  to  the  volume  of  credit 
instruments,  for  there  must  always  be  enough  to  settle  the 
uncanceled  balances  called  for  in  money  from  day  to  day. 

12.  This  demand  for  reserve  has  an  influence  in  deter- 
mining the  value  of  money  on  general  prices  just  as  has 
the  demand  for  money  for  direct  payment. 

13.  The  volume  of  credit  transactions  very  likely  tends 
to  increase  as  population  and  business  grow.  It  does  not 
increase  uniformly,  however,  but  by  periodic  movements. 
That  is  to  say,  the  rate  of  increase  of  credit  transactions, 
as  compared  with  the  whole  volume  of  business,  grows,  as 
it  were,  by  jerks  and  at  a  decreasing  rate. 

THE    BEARING    OF    THESE    INVESTIGATIONS    ON    THE    MONE- 
TARY  SITUATION. 

Several  important  questions  are  closely  related  to  the 
inquiry  which  has  been  reported  and  discussed.  Among 
them  are  these: 


The     Use    of    Credit    Instruments 

1.  What  is  the  amount  of  money  rendered  unnecessary 
by  the  use  of  credit  paper? 

2.  What  is  the  influence  of  the  vast  volume  of  credit 
transactions  on  the  value  of  money  or  the  level  of  prices? 

3.  Why  is  it  that  our  per  capita  circulation  is  so  large 
and  where  is  the  money  in  active  circulation? 

4.  Does  this  discussion  show  the  need  of  more  money 
for  circulation,  or  may  we  safely  rely  upon  our  method  of 
credit  payments  to  meet  the  business  needs  of  the  country  ? 

5.  If  more  money  is  needed,  under  what  conditions  can 
it  be  best  supplied? 

I.  We  will  take  these  questions  up  in  order.  It  is  not 
a  correct  view  of  the  case  to  suppose  that  the  credit  paper 
used  in  settling  debts  displaces  a  volume  of  money  equal 
to  itself.  The  amount  of  money  displaced  is  the  differ- 
ence between  the  amount  that  would  be  needed  in  a  purely 
money  regime  and  the  amount  needed  to  pay  the  uncan- 
celed balances  of  the  credit  transactions.  Now,  the  same 
unsettled  balance  may  result  from  very  different  volumes 
of  business.  This  is  not  the  place  to  discuss  what  factors 
make  the  uncanceled  balance  large  or  small,  nor  do  we 
know  any  way  of  telling  beforehand  what  volume  of  busi- 
ness may  be  settled  by  credit  cancellation  in  a  community 
with  a  given  money  circulation.  In  a  city  where  there 
is  no  clearing  house  and  the  banks  exchange  checks  from 
day  to  day  the  volume  of  business  settled  by  cancellation 
of  checks,  on  the  basis  of  a  given  amount  of  money  as  a 
reserve,  will  be  smaller  than  can  be  so  handled  when  the 
credit  machinery  is  made  more  perfect  by  the  establish- 
ment of  a  clearing  house.     The  process  is  well  illustrated 

7071 — 10 14  203 


National    Monetary     Commission 

in  times  of  stringency  when  the  clearing-house  banks  pool 
their  reserves.  This  is  only  another  way  of  saying  that  a 
larger  volume  of  transactions  is  canceled  and  a  smaller 
balance  left  to  drain  the  reserve.  Therefore,  the  amount 
of  money  displaced  by  the  use  of  credit  paper  in  a  com- 
munity with  the  simplest  form  of  credit  machinery  would 
be  the  whole  volume  of  the  transactions,  minus  the  reserve 
necessary  to  settle  balances.  If  we  could  separate  all  the 
transactions  of  the  day  or  week  into  aggregate  credits  and 
debits  to  be  settled  at  the  same  moment,  the  amount  of 
money  necessary  to  settle  them  would  be  the  part  of  the 
balance  settled  immediately  with  cash,  plus  the  amount 
necessary  as  a  reserve  for  the  part  carried  over  on  the 
books  of  the  banks.  Obviously,  now,  the  amount  neces- 
sary for  reserves  is  a  very  variable  one,  depending  not  only 
on  the  total  amount  of  business,  but  also  upon  that  part 
of  the  unsettled  balances  which  is  called  for  in  money 
form  immediately.  It  is  for  this  reason  that  the  volume 
of  credit  business  that  can  be  done  on  a  particular  reserve 
is  a  very  variable  one.  It  is  also  very  tmstable.  Credit 
built  upon  credit,  as  so  many  of  our  transactions  are, 
trembles  and  falls  at  very  slight  shakings  of  confidence 
in  the  future.  A  comparatively  slight  depression  of  the 
market,  a  comparatively  small  change  in  the  amount  of 
credit  transactions,  may  produce  a  large  uncanceled  bal- 
ance and  make  necessary  a  much  greater  amount  of  money. 
The  more  our  credit  machinery  expands  the  more  delicate 
it  becomes. 

No  one  can  say,  therefore,  with  definiteness  what  is 
the  amount  of  money  released  if  75  or  80  per  cent  of 


204 


The    Use    of    Credit    Instruments 

our  business  transactions  are  settled  by  means  of  credit 
paper.  This  is  a  matter  in  which  the  long  experience  of 
practical  bankers  is  the  only  safe  guide,  because  the 
amount  in  question  is  changing  from  day  to  day  as  the 
conditions  change.  No  simple  rule  about  it  can  be  laid 
down.  Certainly,  however,  it  is  not  75  per  cent  of  the 
money  which  would  be  necessary  if  all  transactions  were 
settled  with  money.  It  is  an  amount  varying  from  one- 
third  to  one-fifth  of  uncanceled  credit  balances,  according 
to  the  perfection  of  the  banking  machinery,  the  state  of 
credit,  prosperity,  and  public  confidence. 

One  point  needs  to  be  carefully  borne  in  mind.  How- 
ever great  the  volume  of  credit  exchanges,  however  ex- 
tensive the  use  of  credit  may  become  in  a  community, 
they  can  never  fully  displace  sales  for  direct  money  pay- 
ment. The  extensive  use  of  credit  is  not  of  itself  a  sign 
that  a  community  is  well  off.  Credit  is  used  in  poor  as 
well  as  in  rich  commtmities.  Its  extensive  use  in  a  poor 
and  undeveloped  country  is  likely  to  indicate  a  lack  of 
capital  rather  than  an  abundance  of  wealth.  Every 
community  tends  to  use  the  cheapest  medium  of  ex- 
change accessible  to  it.  If  its  capital  is  of  very  high 
value  for  producing  goods  for  direct  consumption,  a  com- 
munity will  be  averse  to  investing  much  of  it  in  a  meditmi 
of  exchange. 

This  is  the  reason  why  undeveloped  countries,  as  our 
own  was  a  century  ago,  try  to  effect  their  exchanges  by 
means  of  credit  paper  to  a  larger  extent  than  wealthier 
communities.  Under  such  conditions  paper  money  is 
commonly    thought    to    be    the    cheapest     medium     of 


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National    Monetary     Commission 

exchange.  If,  now,  part  of  the  money  exchanges  are 
replaced  with  credit  exchanges,  the  amount  of  money- 
released,  or  the  amomit  without  which  the  community 
could  now  get  on,  would  be  the  whole  amount  formerly 
used  in  money  payments,  provided  these  payments  now 
done  on  credit  exactly  canceled  one  another,  and  we 
could  be  sure  that  they  would  continue  to  balance  one 
another  forever.  We  know,  however,  that  we  can  not 
be  sure  of  that;  we  know  that  transactions  are  not  likely 
to  cancel  one  another  completely  from  time  to  time; 
hence  the  amount  of  money  released  by  the  substitution 
of  credit  payments  for  direct  money  payments  is  the 
amount  formerly  used  minus  the  reserve  necessary  to 
do  this  credit  business.  The  important  point,  however, 
is  that  less  money  is  necessary.  How  much  less  we 
can  not  be  sure.  We  can  get  some  light  on  the  subject, 
however,  by  noting  the  volume  of  business  done  by  credit 
paper  and  the  balances  which  from  time  to  time  are 
carried  as  a  basis  of  settlement. 

It  is  important  to  note  also  that  an  increase  in  the 
volume  of  credit  transactions  does  not  necessarily  mean 
that  we  must  get  a  proportionate  increase  in  otu  reserve 
of  money.  Every  refinement  of  the  credit  mechanism 
makes  it  possible  to  do  a  larger  volume  of  business  on 
the  same  reserve. 

Of  course,  it  will  not  do  to  over-emphasize  the  impor- 
tance of  credit  exchanges,  vast  as  they  are.  Credit  and 
credit  documents  can  not  replace  money  altogether. 
They  reduce  the  amount  necessary,  but  against  them 
some  reserve  must  always  be  kept,  accessible  for  emer- 


206 


The     Use    of    Credit    Instruments 

gencies  in  the  settlement  of  balances.  The  volume  of 
business  that  can  be  done  by  credit  paper  depends  on 
several  circumstances.  Obviously,  in  the  first  place, 
it  depends  upon  the  banking  facilities  of  the  country. 
If  the  banks  are  widely  distributed,  if  they  are  willing  to 
deal  in  transactions  small  enough  to  be  within  the  reach 
of  large  numbers  of  people,  many  more  transactions  will 
be  settled  through  them  than  would  otherwise  be  the 
case.  This  fact  undoubtedly  explains  in  large  measure 
the  development  of  what  may  be  called  the  "banking 
habit"  among  the  people  of  the  United  States.  Un- 
doubtedly our  people  pay  by  check  much  more  commonly 
and  much  more  largely  than  people  of  any  other  country. 
We  settle  smaller  transactions  by  check;  our  banks  are 
willing  to  carry  smaller  accounts.  Indeed,  the  rapid 
industrial  development  of  our  country  is  probably  due 
in  no  small  degree  to  our  system  of  independent  banks 
and  the  facility  with  which  we  have  permitted  banks  to 
be  established.  The  small  independent  bank  in  the 
coimtry  community  has  felt  that  its  interests  and  suc- 
cess were  bound  up  with  the  interests  and  success  of  the 
community,  and,  therefore,  has  undoubtedly  been  willing 
to  do  more  for  the  general  interests  than  a  branch  of  a 
large  bank  in  some  remote  commercial  center  would  have 
felt  like  doing,  even  if  it  had  been  justified  in  doing  so. 
The  small  capital  with  which  we  have  permitted  banks 
to  be  established  also  has  undoubtedly  been  a  con- 
tributing factor  to  our  rapid  economic  development,  as 
well  as  to  the  promotion  of  the  banking  habit  among 
our  people. 


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National    Monetary     Commission 

In  the  next  place,  the  density  of  population  is,  of  course, 
an  important  factor  for  the  growth  of  credit  exchanges. 
A  larger  volume  of  business  is  settled  by  bank  paper  in 
a  commercial  center  than  in  an  agricultural  community, 
even  though  the  proportion  of  total  business  thus  settled 
may  not  be  larger.  However,  it  is  necessary  that  there 
should  be  a  certain  number  of  people  within  reach  of  a 
common  center  in  order  to  have  a  bank  established  there. 
Of  course  the  smaller  the  bank  the  fewer  the  people 
thus  required.  Thus  again  our  inclination  in  the  past 
to  favor  the  establishment  of  the  small  independent 
banks  has  facilitated  the  spread  of  banking  and  promoted 
the  volume  of  business  settled  in  the  country  districts  by 
credit  payment  and  stimulated  the  banking  habit  among 
our  people. 

Finally,  the  general  education  and  intelligence  of  the 
mass  of  the  people  is  an  important  factor.  Men  do  not 
use  banks  unless  they  have  confidence  in  them,  and  they 
have  come  to  be  regarded  as  a  settled  part  of  the  ordinary 
commercial  mechanism  of  the  community.  Our  people 
are  people  of  a  wide  general  education  and  high  order  of 
intelligence.  They  understand  the  place  and  work  of 
the  bank  in  a  community  much  better  than  the  same 
number  of  people,  for  example,  in  a  European  country. 
This  fact  is  strikingly  brought  out  by  a  study  of  the  pro- 
portion of  retail  business  settled  by  means  of  checks  in 
what  are  called  the  "foreign  "  districts  of  our  large  cities, 
on  the  one  hand,  and  in  an  agricultural  community  on 
the  other.  The  European  immigrant  is  not  a  man  who 
has  had  banking  connections  in  his  home  country,  and 


208 


The    Use    of    Credit    Instruments 

he  does  not  use  them  here,  even  though  the  faciUties  are 
more  numerous. 

Such  evidence  as  there  is  seems  to  indicate  that  pay- 
ment by  check  has  shown  an  increase  during  the  past 
few  years: 

(a)  In  the  first  place,  the  returns  of  our  reports  show 
a  larger  percentage  in  retail  trade.  This  evidence,  of 
course,  is  by  no  means  conclusive,  but  the  checks  could 
not  be  deposited  if  they  were  not  drawn ;  therefore,  whether 
they  are  largely  "cashed"  checks  or  checks  received  in 
payment  of  purchases,  the  fact  that  they  are  deposited 
in  a  larger  degree  indicates  a  wider  use. 

(6)  The  prosperity  of  the  farmers  in  the  Central  West 
has  enabled  many  to  have  bank  accounts  who  fifteen 
years  ago  could  not  carry  balances.  The  writer's  infor- 
mation from  central  Illinois  is  strongly  in  this  direction. 

(c)  The  third  evidence  is  found  in  the  growth  of  the 
number  of  small  banks,  especially  in  the  country  districts. 
Since  national  banks  have  been  permitted  to  establish 
themselves  with  a  capital  of  $25,000  their  number  has 
increased  from  3,617  to  6,926. 

{d)  The  appearance  of  a  considerable  proportion  of 
checks  in  the  deposits  of  mutual  savings  banks  is  also, 
to  some  degree,  significant.  Of  course  the  credit  docu- 
ments received  in  the  deposits  of  these  banks  may  be  to 
a  considerable  extent  money  orders.  Nevertheless  their 
deposits  show  a  certain  use  of  credit  paper  by  the  patrons 
of  these  banks. 

On  the  other  hand,  the  increase  of  that  part  of  the  popu- 
lation which  consists  of  the  wage-earning  class,  by  whom 


209 


National    Monetary     Commission 

the  use  of  checks  is  small,  is  undoubtedly  greater  than 
that  of  our  other  classes  of  population.  However,  the 
wealthy  classes,  though  fewer  in  number,  have  more  to 
spend  and  their  use  of  checks  raises  the  proportion  of 
credit  paper  in  payments. 

We  can  not  expect  any  social  movement  to  continue 
steadily  in  one  direction  for  an  indefinite  time.  Such 
evidence  as  inquiries  of  this  character  furnish  seems  to 
show  that  there  is  a  certain  ebb  and  flow  in  the  proportion 
of  checks  used  in  business  payments.  With  a  given 
amount  of  money  a  certain  proportion  of  it  can  be  used 
for  bank  reserves  on  which  to  build  credit  transactions. 
For  a  time  the  volume  of  business  will  increase  more  rapidly 
than  the  money  supplies,  so  that  the  proportion  of  credit 
business  to  the  whole  will  increase,  the  improvement  of 
the  credit  machinery  in  the  meantime  facilitating  the 
movement.  But  the  perfection  of  the  facilities  for  utiliz- 
ing to  the  utmost  a  given  reserve,  or  a  slowly  increasing 
one,  will  come  to  a  stop  after  a  time,  and  it  will  be  neces- 
sary to  increase  the  money  supply  for  any  further  ex- 
pansion of  credit.  In  the  language  of  business,  another 
unit  of  capital  must  be  added  to  plant.  The  unit  added 
to  the  social  capital  devoted  to  exchange — that  is,  the 
additional  amount  of  money — will  be  larger  than  is  neces- 
sary for  most  profitable  immediate  use,  consequently 
the  proportion  of  money  exchanges  will  for  a  time  show 
an  increase.  We  may  conclude,  therefore,  that  the  volume 
of  business  done  on  credit  gradually  increases  as  the 
population  and  total  amount  of  business  are  enlarged, 


The    Use    of    Credit    Instruments 

but  at  a  decreasing  rate  and  with  occasional  or  periodic 
retardations. 

2.  Relation  of  credit  exchanges  to  the  volume  of  money  and 
prices. — It  is  pertinent  to  inquire,  now,  what  effect,  if  any, 
this  great  settlement  of  indebtedness  by  means  of  credit 
paper  has  upon  the  value  of  money.  Evidently,  it  can 
influence  this  value,  or  the  general  price  level,  only  as  it 
changes  the  amount  of  demand  for  money.  We  have 
seen  reason,  now,  to  think  that  80  per  cent  of  our  business 
transactions  are  settled  by  means  of  credit  paper.  Credit 
paper  cancellation  enables  a  larger  amount  of  business  to 
be  done  with  the  same  amotmt  of  money  and  has  an 
effect  in  determining  the  value  of  money  by  increasing  the 
demand  for  reserves.  Francis  A.  Walker,  who  may  be 
taken  as  a  representative  of  the  extreme  opponents  of 
the  doctrine  that  the  extensive  use  of  credit  documents 
has  a  large  influence  on  prices,  insists  that  the  growth 
of  settlement  by  credit  paper  and  the  general  transfer  of 
credit  paper  by  indorsement,  the  extension  of  bank  de- 
posits and  the  cancellation  of  indebtedness  based  thereon, 
have  practically  no  effect  on  prices.  "These  transactions 
are,  so  far  as  concerns  the  use  and  by  consequence  the 
value  of  money,  the  same  essentially  as  if  they  had  been 
acts  of  barter.  Exchanges  in  this  category  do  not  involve 
the  employment  of  money,  and  they  are  therefore  to  be 
counted  out  when  we  are  considering  the  causes  and  con- 
ditions which  determine  the  value  of  money.  They  con- 
stitute no  part  of  the  demand  for  money."  <^ 

o Francis  A.  Walker:  Discussions  in  Economics  and  Statistics,  I:  199. 


National     Monetary     Commission 

Admitting  the  partial  truth  of  all  this,  it  still  holds  that 
the  use  of  credit  paper  in  effecting  credit  exchanges  makes 
possible  a  far  larger  volume  of  business  than  could  other- 
wise be  done,  and  that  this  increased  volume  of  business 
must  in  some  way  influence  prices  seem  undeniable. 
Mr,  Walker  and  those  who  agree  with  him  insist  that 
its  effect  is  nil.  He  urges  that  all  transactions  by  direct 
barter,  and  by  indirect  barter  or  credit,  are  made  upon 
the  basis  of  prices  determined  by  the  direct  money 
exchanges  and  that  they  thus  have  no  influence  whatever 
on  the  price  level.  "Were  barter  goods  to  be  multiplied 
fourfold  (but  not  at  the  expense  of  the  goods  exchanged 
for  money)  this  would  have  no  effect  upon  prices,  since 
it  would  alter  neither  the  demand  for  nor  the  supply  of 
money."" 

Again,  it  is  urged  that  the  volume  of  business  shown 
by  bank  deposits  or  credit  transactions  does  not  repre- 
sent truly  the  trade  of  the  country.  We  are  told  by 
many  that  there  is  a  vast  amount  cf  credit  transactions 
embodied  in  banking  and  clearing-house  statistics  which 
may  be  termed  "fictitious."  That  is  to  say,  they  are 
not  a  part  of  the  necessary  work  of  exchange  in  a  com- 
munity. For  example,  the  cotton  and  wheat  crops  are 
sold  several  times  over  on  the  exchanges  of  the  country, 
but  not  all  these  purchases  and  sales  are  a  necessary  part 
of  the  process  of  getting  the  cotton  from  the  planter  to 
the  manufacturer.  These  sales,  we  are  told,  are  purely 
speculative  and  born  out  of  the  credit  organization, 
which,  it  is  urged,  merely  makes  the  transactions  pos- 

o  Francis  A.  Walker:  Ibid.,  198. 


The     Use    of    Credit    Instruments 

sible.  If  this  credit  organization  did  not  exist,  these 
multifarious  and  unnecessary  speculative  purchases  and 
sales  would  not  be  carried  on.  In  a  sense,  of  course,  this 
statement  is  true.  In  a  sense,  these  speculative  pur- 
chases and  sales  are  not  necessary  to  get  the  raw  material 
to  the  manufacturer.  In  a  sense,  also,  it  is  true  that 
the  jobbers,  commission  merchants,  and  other  middle- 
men are  not  "necessary"  to  get  the  goods  from  the  manu- 
facturer to  the  consumer.  All  the  existing  agencies  are 
necessary,  however,  to  get  the  cotton  or  the  wool  to  the 
manufacturer  and  the  goods  to  the  consumer  at  the  price 
at  which  they  buy  them,  under  the  existing  machinery  of 
transportation  and  exchange. 

These  exchanges  actually  exist.  All  the  purchases  in- 
volved constitute  a  part  of  the  demand  for  means  of  settle- 
ment. Therefore  they  are  to  be  regarded  as  a  proper  part 
of  the  exchange  business  of  the  country,  and  in  some 
degree  they  must  influence  the  need  for  money. 

The  influence  of  the  volume  of  business  settled  by 
means  of  credit  paper  on  the  value  of  money,  or  the  general 
level  of  prices,  is  far  greater  than  Mr.  Walker  admits. 
The  demand  for  money  to  effect  exchanges  includes,  first, 
demand  for  money  for  direct  exchanges;  second,  demand 
for  reserves  for  credit  exchanges.  Some  goods  exchange 
by  direct  barter  and  still  more  probably  by  indirect  barter. 
If  these  last  exchanges  just  canceled  one  another,  the 
credit  paper  that  grows  out  of  them  would  also  cancel, 
and  no  balances  would  remain  to  be  settled  with  money. 
Usually,  however,  they  do  not  cancel  and  the  balance  must 
be  settled  with  cash;  hence  a  reserve  is  necessary.     We 


213 


National     M on  et ar y     Commission 

never  can  tell  whether  credit  exchanges  will  cancel;  ex- 
perience shows,  indeed,  that  they  never  do  cancel,  and  in 
the  absence  of  certainty  it  is  necessary  for  every  com- 
munity through  its  banks  to  keep  a  reserve  of  money  for 
the  purpose  of  settlement.  Even  if  at  some  time  they  do 
cancel,  we  could  never  be  sure  that  the  next  day  or  the 
next  month  or  the  next  "season "  would  not  give  the  com- 
munity or  the  country  or  the  world  a  disproportionate 
production  of  some  goods  as  compared  with  others,  which 
would  impair  the  equality  of  cancellation  in  exchange  and 
create  a  new  balance  of  indebtedness,  for  the  settlement  of 
which  money  would  be  necessary.  Or  a  new  supply  of 
money  may  become  available  and  so  disturb  the  equality 
of  cancellation,  create  a  new  level  of  prices,  and  therefore 
require  a  balance  for  settlement  in  the  shape  of  a  larger 
reserve.  This  demand  for  reserve  is  certainly  one  of  the 
influences  that  go  to  determine  the  value  of  money.  In 
short,  the  demand  for  money  includes  a  demand  for  direct 
payment  and  a  demand  for  reserve.  Disregarding  for  our 
present  purpose  all  other  factors,  the  value  of  money  or 
the  general  level  of  prices  will  settle  at  a  point  where  a  unit 
of  money  may  be  used  either  for  direct  payment  or  for 
reserves.  Thus  we  see  that  the  volume  of  credit  exchanges 
is  of  great  importance,  not  only  in  enabling  us  to  determine 
the  volume  of  business  done,  but  because  of  the  influence 
on  prices  when  acting  through  bank  reserves. 

3.  Our  monetary  circulation. — Our  per  capita  circulation, 
as  estimated  by  the  Comptroller  of  the  Currency,  has  in- 
creased from  $21.10  in  1906  to  $34.72  in  1908.  This  is 
larger  than   the   per   capita   circulation   of   other   great 


214 


The    Use    of    Credit    Instruments 

industrial  and  commercial  countries  with  the  exception 
of  France.  Why  is  it  necessary  and  where  is  it?  It  is 
necessary,  perhaps,  for  the  following  reasons: 

(a)  A  larger  amount  of  money  is  needed  in  this  country 
because,  in  the  first  place,  our  prices  range  higher.  If  the 
prices  of  articles  commonly  consumed  range  20  per  cent 
higher  than  they  do  abroad,  the  people  who  buy  them  and 
pay  for  them  with  money  need  a  larger  amount  to  make 
their  purchases.  The  same  cause  makes  a  larger  reserve 
necessary  to  exchange  a  given  volume  of  goods  by  credit. 
The  demand  for  money,  therefore,  both  for  reserve  and 
direct  money  transactions,  is  greater  on  account  of  the 
higher  scale  of  prices. 

(6)  The  same  kind  of  reasoning  applies  to  our  wage 
scale.  Whether  the  wage  scale  be  the  cause  of  the  higher 
cost  of  living  or  the  higher  cost  of  living  be  the  cause  of 
the  higher  wage  scale,  more  money  is  needed  to  pay  wages. 
If  wages  are  paid  directly  in  cash,  more  money  will  be 
needed  in  proportion  to  the  trade  If  wages  are  paid  with 
checks,  more  money  will  be  needed  by  the  amount  that 
the  reserve  must  be  increased  to  furnish  a  basis  for  the 
checks. 

(c)  Our  country  is  more  sparsely  settled  than  England, 
France,  or  Germany.  In  spite  of  the  large  increase  in 
the  banking  facilities  of  the  country,  it  still  remains  true 
that  very  many  places  are  remote  from  banks,  so  that 
business,  so  far  as  it  is  not  barter,  will  probably  be  carried 
on  with  money.  It  is  necessary,  therefore,  to  have  a 
larger  amount  of  money  than  if  population  were  denser. 
We  have  seen  that  the  proportion  of  credit  paper  in  the 


215 


National    Monetary     Commission 

deposits  of  the  agricultural  parts  of  the  country  is  higher. 
This  condition  is  probably  due  as  much  to  the  difficulty 
of  getting  a  sufficient  amount  of  money  as  to  the  desire  to 
use  the  bank-deposit  system  of  payment. 

{d)  It  may  be  that  our  spirit  of  individualism  plays 
some  part.  So  large  a  proportion  of  our  wage-earning 
population  have  come  from  conditions  where  they  had 
opportunity  to  handle  very  little  money,  that  they  like 
to  carry  money  on  their  persons.  It  makes  them  feel,  as 
one  man  said  to  the  writer,  "more  independent."  To 
quote  the  same  informant,  they  would  "rather  pay  higher 
prices  and  have  more  money  to  pay  with." 

{e)  Doubtless  there  is  a  good  deal  of  hoarding  by  people 
who  distrust  banks  or  are  not  near  enough  to  use  them. 
It  might  be  urged  that  no  larger  proportion  of  people  here 
hoard  than  is  the  case  in  Europe.  Without  disputing  this, 
it  is  true,  however,  that  if  only  the  same  proportion  hoard 
and  in  the  same  relative  amounts  as  is  done  by  corre- 
sponding classes  of  the  population,  the  absolute  amount 
thus  withdrawn  would  be  larger  because  of  our  higher 
scale  of  wages  and  prices. 

It  is  a  dangerous  thing  to  attempt,  but  we  may  make  a 
rough  estimate  of  the  amount  of  money  necessary  for 
business  in  this  country,  somewhat  as  follows: 

If  we  add  returns  for  the  nonreporting  banks  according 
to  their  ratio  to  the  whole  number  and  the  various  classes 
of  deposits,  we  get  in  round  numbers  $990,000,000  as 
the  bank  deposits  of  the  day.  Of  this  amount  5  per 
cent,  let  us  say,  was  in  money,  amounting  to  about 
$50,000,000.     If  we  add    $20,000,000    for    business  not 


216 


The     Use    of    Credit    Instruments 

"banked"  we  get  $70,000,000  as  the  amount  of  money 
passing  in  the  business  of  one  day.  How  often  does 
this  turn  over?  Probably  once  in  about  twenty-one  days. 
For  the  week  is  a  common  wage  period;  three  to  ten 
days  are  the  payment  period  of  many  business  houses 
which  take  advantage  of  discounts;  and,  of  course,  thirty 
days  are  also  common.  Let  us  take  twenty  days  as  the 
average.^  Then  $1,400,000,000  is  the  amount  of  money 
used  in  the  turnover.  The  banks  have  $1,500,000,000. 
Take  $100,000,000  to  $200,000,000  as  the  amount  abroad 
hoarded,  lost,  and  destroyed.  This  gives  us  a  grand  total 
of  $3,000,000,000  to  $3,100,000,000,  or  approximately 
our  reported  circulation. 

4.  Do  we  need  more  money? — It  is  sometimes  urged  that 
an  increasing  use  of  credit  renders  a  larger  volume  of 
money  unnecessary ;  or  at  any  rate  that  the  increase  in  the 
need  for  a  medium  of  exchange  may  be  met  by  our  very 
admirable  elastic  system  of  bank  deposits.  There  are  two 
or  three  considerations  that  must  be  urged  in  reply  to  this 
last  opinion.  As  we  have  already  noted,  the  use  of  credit 
paper  is  not  of  itself  proof  that  a  community  is  wealthy. 
Indeed  this  circumstance  may  show  the  very  opposite 
condition.  Some  of  our  agricultural  communities  which 
are  using  checks  so  largely  may  be  doing  so  because  of  the 
difficulty  of  getting  money,  or  they  may  be  doing  so  by 
choice.  In  other  words,  the  large  use  of  credit  paper  may 
under  some  circumstances  mean  that  it  is  difficult  to  get 
currency.     We   can   not    be    sure  without   knowing  the 

o  I  am  indebted  to  Professor  Irving  Fisher  for  this  estimate  for  1896.  It 
is  based  on  the  report  of  that  year. 


217 


National     Monetary     Commission 

circumstances  of  the  particular  case.  It  is  the  opinion  of 
the  writer  that  this  is  in  part  an  explanation  of  the  large 
use  of  deposit  banking  in  this  country. 

In  the  next  place,  the  settlement  of  a  very  large  propor- 
tion of  exchanges  by  means  of  credit  paper  introduces  a 
delicacy  of  character  into  the  trading  mechanism  of  a  com- 
munity which  may  cause  it  to  be  more  easily  upset.  The 
larger  the  volume  of  credit  settlements  in  proportion  to  the 
volume  of  money  settlements,  the  greater  the  panic  when 
confidence  breaks  down  and  the  balance  of  canceled  credit 
transactions  thereby  is  made  larger.  A  breakdown  of 
confidence  means  an  increase  in  the  amount  of  transactions 
that  must  be  settled  by  ready  money.  Therefore  it  is  not 
a  safe  condition  for  the  country  to  have  the  amount  of 
actual  money  so  small  for  its  retail  transactions  that  when 
confidence  fails,  the  strain  on  it  will  be  severely  felt.  It 
would  be  better  for  the  country  to  have  a  smaller  volume 
of  credit  transactions  and  a  larger  volume  of  direct  money 
payments.  If  the  habits  of  the  people  preclude  this,  then 
some  means  should  be  provided  of  supplying  readily  and 
efficiently  the  increased  demand  for  ready  money  which 
occurs  on  account  of  a  breakdown  of  confidence  and  the 
increase  of  the  uncanceled  balances  of  credit  transactions. 
In  other  words,  sources  of  additional  currency  supply 
which  will  flow  out  rapidly  when  it  is  needed  to  the  places 
where  it  is  needed,  and  will  retreat  with  equal  efficiency 
when  the  emergency  passes,  is  an  especial  desideratum  in 
a  country  where  the  proportion  of  transactions  settled  by 
credit  paper  is  very  large. 


218 


The    Use    of    Credit    Instruments 

5.  The  additional  supply  of  circulating  medium  neces- 
sary in  times  of  stringency  can  be  supplied  in  any  one  of 
three  ways.  In  the  first  place,  it  may  be  issued  imder  some 
arrangement  by  the  existing  independent  banks  of  the 
country  in  their  various  communities.  This  is  virtually 
an  increase  of  credit  currency.  In  the  second  place,  it 
might  possibly  be  supplied  from  some  central  bank  to  the 
existing  banks  in  the  various  communities.  In  the  third 
place,  the  existing  credit  currency,  United  States  notes, 
might  be  retired  and  their  place  taken  with  specie  which, 
in  time  of  stress,  could  be  gathered  in  to  a  greater  or  less 
extent  in  return  for  an  increased  volume  of  bank  notes  to 
be  issued  in  either  one  of  the  first  two  ways. 

It  is  not  the  province  of  this  paper,  however,  to  discuss 
this  matter.  Therefore  the  writer  contents  himself  with 
simply  mentioning  these  three  ways. 


-15  219 


New  York .... 
Massachusetts. 

Missouri 

Nebraska 

Illinois 

Oregon 

Minnesota 

Iowa 


California 

Wisconsin 

Louisiana 

Montana 

Utah 

Pennsylvania 

Kentucky 

Delaware 

Texas 

Virginia 

Washington 

Tennessee 

Nevada 

Colorado 

Connecticut 

Maryland 

North  Dakota 

Ohio 

Florida 

New  Hampshire. 

Georgia 

South  Dakota . . . 
North  Carolina.. 

Wyoming 

Idaho 

New  Jersey 

Michigan 

Rhode  Island 

Alabama 

Maine. 

Vermont 

Mississippi 

New  Mexico 

Oklahoma 

Indiana 

West  Virginia 

Arizona 

Arkansas 

South  Carolina . . . 
Diet,  of  Columbia. 


7071 — ID 


DIAOBAM  OF  TKE  PEE0ENT4GE  OF  OHIOKS  IN  AOOEEOATE  DEPOSITS  BY  STATES. 


,„                       Ul,                      so                       6 

1                     TO                     «0                     90                     »■ 

Mtamri™^'' 

"tt* 

UJAiiaot* 

rj^*"" 

I^wuuyl™.U 

XtDtuchr. 

W-hinjton 

Conomileut 

Uo^lwd 

WyomU). 

NewJoMy 

RbodeliUiid 

OlLh—T 

AAuuM 

■""-"""■■ 

"Wyoming 

New  York 

Oregon 

Montana 

Missouri 

Washington 

Massachusetta 

New  Mexico 

Arkanecs 

Nebraska 

Illinois 


California 

Iowa 

Nevada 

Utah 

Colorado 

Idaho 

Minnesota 

South  Dakota. 

Vermont 

North  Dakota. 
Wisconsin .... 

Oklahoma 

Tenne.ssee 

Kentucky..... 

Texas 

Virginia 

Louisiana 

North  Carolina. .. 

Michigan 

Missis-sippi 

Alabama 

West  Virginia. .. . 

Pennsylvania 

New  Hampshire. 

New  Jersey 

Ohio 

Arizona 

Connecticut 

South  Carolina... 

Florida 

Georgia 

Indiana 

Delaware 

Maryland 

Maine ' 

Rhode  Island — .' 
Dist.  of  Columbia. 


7071 — 10 


DIAGRAM  OF  THE  PEECENTAOE  OF  CHFOKS  IN  RETAIL  DEPOSITS  BY  STATES. 


Kentucky.. . 

Florida 

HuyUnd.... 


National  banks 

Loan  and  trust 

State  banks 

Private  banks 

Stock  savings  banks. 
Mutual  savings  bankB 


National  banks 

Loan  and  trust 

State  banks 

Stock  savings  banks. 

I*rivate  banks 

Mutual  savings  bank!). 


7071 — 10 


DUOEAM  or  THI  PEEOENTABE  OF  OHEOKS  IN  EETAIL  DEPOSITS  BY  CLASSES  OF  BANKS. 
m 3^ ft2 ill i2 {2 If Ifi e  > 


SELECT  BIBLIOGRAPHY. 

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Assoc,  3d  sen,  VI:  103-107. 
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the  Year  1839.     Journ.  Stat.  Soc,  Lond.,  XIX:  28. 
Barnett,  R.  W.  :  The  Effect  of  the  Development  of  Banking  Facilities, 

etc.     Journ.  Inst.  Bankers,  II:  73,  esp.  78. 
CONANT,  C.  A.:  Extension  of  the  Clearing  System.     Bank.  Mag.,  N.  Y., 

LXX:  433. 

Dun,  John:  The  Banking  Institutions,  Bullion  Reserves,  etc.,  of  the 
United  Kingdom.     Journ.  Stat.  Soc,  Lond.,  XXXIX:   i. 

ESSARS,  Pierre  des:  La  Vitesse  de  la  Circulation  de  la  Monnaie.  Journ. 
de  la  Soc.  de  Statist,  de  Paris,  Apr.,  1895,   143  ff. 

Farrer,  Sir  T.  H.:  What  do  we  Pay  With?  or.  Gold,  Credit,  and  Prices. 
London,  1889. 

Fisher,  Irving:  A  Practical  Method  of  Estimating  the  Velocity  of  Circu- 
lation of  Money.     Journ.  Stat.  Soc,  Lend.,  LXXII,  Pt.  III. 

Fisher,  Willard;  Money  and  Credit  Paper  in  the  Modern  Market. 
Journ.  Pol.  Econ.,  Chicago,  III:  391-413. 

Garfield,  James  A.:  Speech  in  Cong.  Rec,  Nov.  16,  1877,  p.  462. 

Gilbart,  J.  W. :  The  Laws  of  the  Currency  in  Scotland.  Journ.  Statist. 
Soc,  XIX:  144-169.     Especially  pp.  157,  167,  168.     London. 

Kemmerer,  Edwin  Walter:  Money  and  Credit  Instruments  in  their 
Relation  to  General  Prices.     New  York,  1907.     2d  ed.,  1909. 

KiNLEY,  David:  Credit  Instruments  in  Retail  Trade.     Journ.  Pol.  Econ., 
Ill:  203-217.     Chicago,  1895. 
Credit    Instruments   in    Business   Transactions.     Journ.    Pol.    Econ., 

V:   157-174.     Chicago,  1897. 
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Chicago,  1 90 1. 
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43,  44,  199-223.     New  York,  1904. 
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Comptroller.) 
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the  Comptroller.) 
The  Relation  of  the  Credit  System  to  the  Value  of  Money.     Publ.  Amer. 
Econ.  Assoc,  3d  ser.,  VI:  84-94.     New  York,  1905. 

Knox,  John  Jay:  Address  to  the  American  Bankers'  Association.  Pro- 
ceedings of  the  Convention  of  the  American  Bankers'  Associa- 
tion, 1 88 1,  pp.  33-49.     New  York,  1881. 

223 


National     Monetary     Commission 

Landry,  A.:  La  Rapidite  de  la  circulation  mon^taire.  Rev  d'Rcon. 
Pol.,  1905. 

Lubbock,  Sir  John:  The  Country  Clearing.  Journ.  Statist.  Soc,  XXVIII: 
361-371.     London,  1865. 

MacLeod,  Henry  Dunning:  The  Theory  and  Practice  of  Banking,  sth 
ed.,  2  vols.     London,  1892. 

Martin,  John  B.:  An  Inquiry  into  the  History,  Functions,  and  Fluctua- 
tions of  the  Bank  Note  Circulation  in  the  United  Kingdom, 
Continental  Europe,  and  the  United  States.  Journ.  Inst. 
Bankers,  I:  273-341,  especially  282-292.     London,   1880. 

MuHLEMAN,  Maurice  L.  :  Monetary  and  Banking  Systems.  New  York, 
1908. 

PalgravE,  R.  H.  I.:  Notes  on  Banking  in  Great  Britain  and  Ireland, 
Sweden,  Denmark,  and  Hamburg,  etc.  Journ.  Statist.  Soc, 
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PowNALL,  George  H.:  The  Proportional  Use  of  Credit  Documents  and 
Metallic  Money  in  English  Banks.  Journ.  Inst.  Bankers,  II: 
629-675.     London,  1881. 

Report  of  the  Comptroller  of  the  Currency,  1881,  pp.  11-23.  Washing- 
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Report  of  the  Comptroller  of  the  Currency,  1890,  pp.  19  ff.  Washington, 
1890. 

Report  of  the  Comptroller  of  the  Currency,  1892,  pp.  31-39.  Washing- 
ton, 1892. 

Report  of  the  Comptroller  of  the  Currency,  1894,  pp.  17-24.  Washing- 
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Report  of  the  Comptroller  of  the  Currency,  1896,  pp.  57-98.  Washing- 
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Review  of  the  Annual  Report  of  the  Comptroller  of  the  Currency  of  the 
United  States,  1894.  Journ.  Inst.  Bankers,  XVI:  83-85.  Lon- 
don, 1895. 

SpraguE,  O.  M.  W.  :  Distribution  of  Money  between  the  Banks  and  the 
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Boston,  1904. 

Veblen,  T.  B.  :  The  Use  of  Loan  Credit  in  Modern  Business.     Chicago,  1903. 

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224 


INDEX 


Accounts,  number  of  bank,  191  ff.;  and  use  of  checks,  201. 

Aggregate,  all  other  deposits,  by  banks,  171;  in  representative  reserve 
cities,  172;  by  States,  169. 

Agricultural  districts,  checks  in,  86;  deposits  in  152 ;  retail  deposits  in,  92  flf. 

Allowances  and  corrections  in  statistics,  75  ff.;  116;  for  all  other  deposits, 
151;  for  ignorance  of  business,  122;  in  wholesale  figures,  123. 

American  investigations,  20  ff . ;  criticism  of,  30. 

Babbage,  Charles,  investigations  by,  13. 

Bakers,  checks  in  payments  to,  no. 

Bank  accounts,  number  of,  191  ff. 

Bank  deposits  as  showing  proportion  of  credit  paper,  8. 

Banking  power  of  the  United  States,  196. 

Banks,  aggregate  retail  deposits  of,  68;  cash  and  checks  in  pay  rolls  made 
up  by  national,  96;  by  state,  98;  by  private,  99;  by  stock  savings,  loi; 
by  mutual  savings,  loi;  classes  of  reporting,  50;  classification  of  in  this 
inquiry,  50;  discussion  of  "all  other  "  deposits  in,  154;  discussion  of  retail 
deposits  of  national,  69;  of  State,  69;  of  private,  70;  of  stock  savings, 
72;  of  mutual  savings,  73;  not  replying,  75;  number  of,  75  ff. ;  number 
of  reporting  in  this  inquiry  by  States,  47  ff. ;  retail  deposits  in  national, 
58;  in  State,  60;  in  private,  62;  in  stock  savings,  64;  in  mutual  savings, 
65 ;  retail  deposits  of  at  representative  reserve  cities,  88  ff. ;  wholesale 
deposits  in,  137  S. 

Barbers,  checks  in  payments  to,  1 10. 

Barnett,  R.  W.,  quoted,  10,  19. 

Barter,  2. 

Bibliography,  223. 

Bills,  change  in  denominations  of,  189  ff. 

Blank  form  sent  out,  33. 

Brockton,  Mass.,  checks  in  retail  deposits  of,  95. 

Business,  influence  of  character  of,  on  payment  by  checks,  54  ff. ;  volume 
of,  settled  by  credit  paper,  4;  what  determines  volume  of,  done  by  credit 
paper,  207. 

Butchers,  checks  in  payments  to,  27,  109. 

Checks,  allowance  for  excess  of,  in  bank  deposits,  78  ff.;  average  size  of,  in 
England  and  U.  S.,  9,  10;  business  represented  bj^  115;  cashing  of ,  for 
accommodation,  78;  conclusion  as  to  use  of,  199;  danger  in  too  great 
use  of,  201;  duplication  of,  151,  159;  errors  in  proportion  of,  80;  final 
conclusion  as  to  proportion  of,  196  ff.;  and  habit,  119;  increase  of  pay- 
ments by,  209;  in  deposits  in  cities  and  agricultural  districts,  86;  in 
reserve  cities,  86;  influence  of  habit  on  payment  with,  53;  influence  of 
payments  on  use  of,  104;  pay,  79;  and  payrolls,  96;  percentages  of,  at 

225 


National    Monetary     Commission 

different  dates,  199;  proportion  of,  in  business  in  Great  Britain,  12  ff.; 
use  of  by  clerks,  104;  by  foreigners,  120;  by  manual  laborers,  105;  by 
negroes,  120;  by  wage-earners,  95,  209;  and  volume  of  money  displaced 
by,  203  ff. 

Chicago,  checks  in  stores  in  Loop  district  of,  56. 

Circulation,  explanation  of  our  large,  202,  214;  reasons  for  our  large, 
215  ff. ;  total  currency,  197. 

Cities  of  less  than  25,600,  checks  in,  86;  retail  dei)osits  in,  94;  wholesale 
deposits  in,  149. 

Classification  of  banks,  50. 

Clearing-house  returns  and  volume  of  money  needed,  6;  and  proportion  of 
credit  paper,  7. 

Clothiers,  checks  in  payments  to,  113. 

Confectioners,  checks  in  payments  to,  no. 

Contents  III. 

Corrections.     See  Allowances. 

Credit,  and  volume  of  money,  3,  4;  relation  to  density  of  population  and 
general  education,  208;  relation  of,  to  volume  of,  money  and  prices,  211. 

Credit  paper  in  payments,  criticism  of  replies  in  1909,  42 ;  interest  in  inves- 
tigation of,  39;  inquiries  into  1909,  31  ff.;  proportion  of  in  bank  deposits 
in  1881,  21;  in  1890,  23;  in  1892,  25;  in  1894,  27;  in  1896,  29. 

Credit  transactions,  mode  of  growth  of,  202. 

Currency,  amount  of,  in  country,  197;  change  in  denominations  of,  189  ff. ; 
means  of  supplying  additional,  201. 

Custom,  influence  of,  on  payments  with  checks,  53. 

Date  of  inquiry,  why  chosen,  40  ff. 

Davenport,  Iowa,  checks  in  payments  at,  1896,  108. 

Denominations  of  currency,  189  ff. 

Department  stores,  checks  in  payments  to,  109,  no,  ii2,  113,  114,  115. 

Deposits,  aggregate,  all  classes  of  banks  by  States,  181  ff. ;  aggregate  all 
other  in  live  States  except  in  cities  of  more  than  25,000,  177;  aggregate 
in  reserve  cities,  185;  aggregate  retail  at  representative  reserve  cities,  91; 
allowances  and  corrections  for  all  other,  151;  classification  of,  27,  28,  33, 
51;  conclusion  as  to  percentage  of  checks  in  all  other,  158;  conclusion  as 
to  wholesale,  148;  discussion  of  all  other  than  retail  and  wholesale,  150;  by 
classes  of  banks,  154  ff. ;  discussion  of  retail,  by  banks,  69  ff. ;  of  aggregate 
retail,  73  ff. ;  in  agricultural  districts,  152;  of  wholesale,  134  ff. ;  distribu- 
tion of  aggregate  by  banks,  183  ff. ;  estimate  of,  in  banks  not  replying, 
75  ff. ;  percentage  of,  in  country  districts,  187  ff. ;  retail,  57  ff. ;  retail,  at 
representative  reserve  cities  by  banks,  88  ff. ;  retail,  in  five  states  less 
large  cities,  94;  size  and  number  of  individual,  by  states,  193  ff. ;  tables  of 
retail,  by  banks  and  states,  58  ff.;  tables  of  all  other  by  banks  and  states, 
160  ff. ;  by  geographical  divisions,  177;  table  of  aggregate  retail,  by  states, 
66  ff . ;  by  banks,  68 ;  wholesale,  tables  of,  by  banks  and  states,  1 24  ff. ; 
table  of  aggregate  wholesale,  by  states,  131;  by  banks,  133;  by  geo- 
graphical divisions,   144  ff 

226 


The     Use    of    Credit    Instruments 

Diagram  of  percentage  of  checks  in  aggregate  deposits  by  States,  220. 

Diagram  of  percentage  of  checks  in  retail  deposits  by  States,  221. 

Diagram  of  percentage  of  checks  in  retail  deposits  by  classes  of  banks,  222. 

Druggists,  checks  in  payments  to,  1 1 1,  112. 

Duplication  of  checks  in  deposits,  81. 

Eckels,  James  H.,  investigation  by,  27. 

Education,  and  use  of  credit,  208. 

England,  inquiries  made  in,  concerning  proportion  of  credit  paper  in  bank 
receipts  of,  12  ff.;  criticism  of,  18  ff. 

Exchange,  methods  of,  2. 

Expenditure  of  workingmen,  1 1 7 ;  of  other  classes,  118,  119. 

Fall  River,  Mass.,  checks  in  retail  deposits  at,  95. 

Farmers,  bank  accounts  of,  92. 

Fisher,  Prof.  Willard,  views  of,  7. 

Foreigners,  use  of  checks  by,  1 20. 

Furniture  dealers,  checks  in  payments  to,  109. 

Garfield,  James  A.,  quoted,  20. 

Geographical  divisions,  retail  deposits  by,  82  ff. ;  wholesale  deposits,  by, 
144  ff. 

Green  Bay,  Wis.,  use  of  checks  in  business  at,  92. 

Grocers,  checks  in  payments  to,  55,  iii. 

Hepburn,  A.  B.,  investigation  by,  24. 

History  of  inquiries  into  the  proportion  of  credit  paper  in  payments,  1 1  ff. 

Hoarding,  216. 

Investigation  of  1896,  28,   121;  merchants'  reports  in,  106. 

Iowa  City,  Iowa,  checks  in  payments  at,  in  1896,  107- 

Knox,  John  J.,  investigations  by,  20. 

Lawrence,  Kans.,  checks  in  payments  at,  in  1896,  108. 

Lawrence,  Mass.,  checks  in  retail  deposits  at,  95. 

Lewiston,  Me.,  checks  in  payments  at,  in  1896,  107. 

Loan  and  trust  companies,  cash  and  checks  in  pay  rolls  made  up  by,  100; 
discussion  of  all  other  deposits  in,  155;  discussion  of  retail  deposits  in, 
71;  discussion  of  wholesale  deposits  in,  136;  retail  deposits  of,  at  repre- 
sentative reserve  cities,  90;  retail  deposits  in,  63  ff;  table  of  retail  deposits 
of,  63. 

Lowell,  Mass.,  checks  in  retail  deposits  at,  95. 

Lubbock,  Sir  John,  referred  to,  9;  investigations  by,  15  ff. 

Manufactures,  expenditures  of  employees  in,  117. 

Martin,  John  Biddulph,  investigation  by,  16. 

Merchants,  information  received  from,  11,  105  ff;  information  from  in 
1909,  109  ff. 

Money,  amount  needed,  i,  2;  and  credit,  5;  estimate  of  amount  of,  neces- 
sary, 210  ff;  exchanges,  3;  need  for  more,  217;  not  deposited,  116; 
significance  of  large  use  of,  205 ;  volume  of  and  credit  exchanges,  211; 
volume  of  displaced  by  checks,  203  ff. 

227 


National    M  on  et  ar  y     Commission 

Morrison,  Dillon  &  Co.,  report  on  receipts  of  by  Mr.  Slater,  u. 

Murray,  Lawrence  O.,  Comptroller  of  the  Currency,  letter  of,  in  present 
inquiry,  31;  form  of  reply,  33. 

Mutual  savings  banks,  cash  and  checks  in  pay  rolls  made  up  by,  loi ; 
checks  in  all  other  deposits  of,  157;  discussion  of  retail  deposits  of,  73; 
in  inquiry,  52;  retail  deposits  in,  65;  retail  deposits  of  at  representative 
reserve  cities,  91. 

National  banks,  accuracy  of  answers  of,  45 ;  cash  and  checks  in  pay  rolls 
made  up  by,  96;  discussion  of  all  other  deposits  in,  154;  discussion  of 
retail  deposits  of,  69;  discussion  of  wholesale  deposits  of,  134;  number 
of,  196;  retail  deposits  in,  58  ff;  retail  deposits  of  at  representative 
reserve  cities,  88;  savings  accounts  in,  51;  wholesale  deposits  of  at  repre- 
sentative reserve  cities,  137. 

National  Monetary  Commission,  membership  of,  2. 

Negroes,  use  of  checks  by,  120. 

New  Brunswick,  N.  J.,  checks  in  payments  at,  in  1896,  106. 

Notion  stores,  checks  in  payments  to,  1 1 1. 

Palgrave,  R.  H.  Inglis,  investigations  by,  13  flf. ;  quoted,  9,  article  of, 
quoted,  6. 

Paterson,  N.  J.,  checks  in  payments  at,  in  1896,  95. 

Pawtucket,  R.  I.,  checks  in  payments  at,  1896,  95. 

Pay  checks,  79. 

Pay  rolls,  in  checks,  how  cashed,  104;  use  of  checks  in,  96. 

Population  and  checks  deposited,  1 19;  density  of  and  growth  of  credit,  208. 

Pownall,  G.  H.,  investigations  by,  17;  referred  to,  19. 

Price,  money,  exchanges  and,  3;  effect  of  barter  on,  2. 

Prices,  and  credit  exchanges,  211;   range  of  and  amount  of  money,  215. 

Private  banks,  cash  and  checks  in  pay  rolls  made  up  by,  99;  discussion  of 
all  other  deposits  in,  155;  discussion  of  retail  deposits  of,  70;  discussion 
of  wholesale  deposits  of,  135;  retail  deposits  in,  62;  retail  deposits  of  at 
representative  reserve  cities,  90. 

Questionnaires,  defects  of,  in  investigations,  36. 

Railroad  companies,  checks  in  payments  to,  electric  and  steam,  112. 

Railway  employees,  expenditure  of,  118. 

Replies  to  inquiry,  table  of,  47;  distribution  of,  51. 

Reserves,  volume  of  credit  transactions  and  bank,  206. 

Reserve  cities,  aggregate  deposits  in  representative,  185  ff. ;  all  other  depos- 
its in  representative,  172  ff. ;  checks  in,  86;  discussion  of  wholesale 
deposits  at  representative,  137;  wholesale  deposits  of  state  banks  in, 
138;  of  other  banks  in,  138;  aggregate  in,  138. 

Retail  dealers,  description  of,  81. 

Retail  deposits,  57  ff. ;  in  representative  reserve  cities  by  banks,  88  ff.; 
aggregate  in  representative  reserve  cities,  91;  in  five  states,  less  large 
cities,  94;  of  national  banks,  discussion  of,  69;  of  state  banks,  69;  of 
private  banks,  70;  of  loan  and  trust  companies,  71;  of  stock  savings 
banks,  72;   of  mutual  savings  banks,  73;   of  aggregate,  73. 

228 


The     Use    of    Credit    Instruments 

Retail  stores,  checks  in  payments  to,  io6  ff.,  109  ff. 

Retail  trade,  proportion  of  paper  in  payments  in,  27,  29;  difficulty  of 
defining,  44  flf. 

Salford  bank,  credit  paper  in  deposits  of,  13  ff. 

Savings  accounts  in  national  banks,  51. 

Savings  Banks,  discussion  of  all  other  deposits  in,  156;  Mutual  and  Trus- 
tee, 50;  Mutual,  in  inquiry,  52. 

Slater,  William,  investigations  by,  12. 

Speculators,  158;  checks  of,  180;  checks  in  transactions  of,  198;  deposits 
of,  152  ff. ;  transactions  of,  212  ff. 

State  banks,  cash  and  checks  in  pay  rolls  made  up  by,  98;  discussion  of  all 
other  deposits  in,  155;  discussion  of  retail  deposits  of,  69;  discussion  of 
wholesale  deposits  of,  134;  retail  deposits  of,  at  representative  reserve 
cities,  89;  retail  deposits  in,  60;  wholesale  deposits  of,  in  reserx^e  cities, 
138. 

Statistics  obtained  in  present  inquiry,  discussion  of,  38. 

Stock  savings  banks,  cash  and  checks  in  pay  rolls  made  up  by,  loi ;  dis- 
cussion of  retail  deposits  of,  72;  in  inquiry,  52;  retail  deposits  in,  64,  65; 
retail  deposits  of,  at  representative  reserve  cities,  9 1 . 

Sturgeon  Bay,  Wis.,  proportion  of  checks  in  deposits  at,  93. 

Trustee  savings  banks,  checks  in  all  other  deposits  of,  157. 

Wage  earners  and  use  of  checks,  95,  209. 

Wages,  mode  of  payment  of,  80;  payment  of,  by  check,  200;  range  of  and 
amount  of  money,  215;  table  of  payrolls  of,  in  money  and  checks,  96  ff. 

Walker,  Francis  A.,  quoted,  152,  211;  views  of,  on  proportion  of  business 
payments  made  with  credit  paper,  5. 

Wholesale  dealers,  meaning  of,  122. 

Wholesale  deposits,  122  ff.;  by  geographical  divisions,  144  ff.;  conclusion 
concerning,  148;  discussion  of  aggregate  of,  136;  discussion  of  loan  and 
trust  companies,  136;  of  national  banks,  134;  of  private  banks,  135;  of 
state  banks,  134;  in  five  States  in  cities  of  less  than  25,000,  149;  in  rep- 
resentative reserve  cities,  137;  tables  of,  124  ff.;  tables  of,  at  representa- 
tive reserve  cities  by  banks  and  States,  139  ff. ;  aggregate,  143. 

Wholesale  trade,  difficulty  of  defining,  44  ff. 

Winterset,  Iowa,  checks  in  payments  at,  in  1896,  108. 


229 


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